Trading Oil :Home
Hello
and a very warm welcome to another of my financial sites, which I hope will
explain everything you need to know about trading oil, a
complex market and one which is little understood by many traders, even
those experienced in trading other instruments and markets. In the last few
months oil has hit the headlines, firstly breaching the psychological
barrier of $100 dollars a barrel, and more recently reaching a peak of
around $150 per barrel. Indeed many market commentators fully expect this
trend to continue unabated, with some ( such as Goldman Sachs) forecasting a
target of $200 in the next 18 months, despite the recent pullback to more "
comfortable prices" of around $100 again). Whether this will happen or not is
of course pure speculation, and indeed is how we all live as traders, but one
thing is crystal clear - this market is like no other. To be successful you
have to understand the laws of supply and demand, have a thirst for
knowledge, and think laterally, not in a straight line. Talk to professional
oil traders and you will find that their success is based on their contacts,
who in turn will provide them with the advance information of likely supply
or demand issues, coupled with those acts of war, nature and political unrest
which can bring immense volatility into the markets without warning.
Information, research and analysis will be the key to your success - if all
this sounds rather too academic for you, then I would suggest you won't make
it, trading for yourself or anyone else. If on the other hand you are
prepared to study, research and learn, in much the same way as for a degree
or doctorate, then I would suggest you have the temperament to be
successful. So in summary, I hope that this site will provide the basic
building blocks to help you to understand the market, the risks, the
possible rewards and the instruments available for trading oil
in all its various forms.
Trading Oil - Introduction
Of all the raw commodities that are extracted from the planet, none have more impact over world economies and the balance of political power, than oil. Indeed it is often said that the next major conflict will be a struggle for control of our natural resources, and not for territorial gain. With increasing demand and only a finite supply, the conclusion would seem obvious, that prices must continue to rise inexorably - yet this takes no account of the speculator, and for those of you reading recent reports in the national press, and on TV, it is the speculators who have been largely responsible for driving prices higher in the last 12 - 18 months. Indeed one report recently in the New York Times suggested that 80% of Americans believed that recent oil prices were manipulated and driven by speculators, and it seems that Congress agrees. Armed with this report suggesting that this is indeed the case, they are currently renewing efforts to introduce legislation excluding institutional investors from trading the commodity markets. Even Senator Obama has added his voice, calling for tighter regulation on oil speculators, proposing a closure of the so called "Enron loophole" (which allowed crude oil trading transactions to be hidden from the authorities) and better regulation of the oil futures market. Whether any of these initiatives will come to fruition is anyone's guess - my own is that they will not, and like many other attempts to regulate markets or trading activities, will simply become buried in a bureaucratic quagmire. One could equally argue that the relationship to the US dollar is of equal importance, which again ( if one believes the press ) is manipulated by speculators. This is another factor I will cover in detail later.
So is all this public vitriol justified and how much influence do we as oil traders and speculators really have in the price of this precious commodity? Let's start by taking a look at the history of oil and start to learn about the whole business of trading oil, and then move on to look at the markets and the opportunities for us to trade.