Thanks to its unique position within the world's economic and political structures, crude oil trading provides excellent profit opportunities in virtually all market conditions. Furthermore, energy sector volatility has increased dramatically in recent years, ensuring clear patterns that can generate consistent returns for brief swing trades and long-term trading strategies.
Market investors often miss out on the full benefits of crude oil volatility, either because they haven't understood the peculiar characteristics of these markets or because they aren't conscious of the hidden pitfalls that can eat away at profits.
Crude oil moves through expectations of supply and demand, influenced by worldwide production as well as global economic growth. Oversupply and dwindling demand encourage traders to offer crude oil markets, while increasing demand and decreasing or flat output encourages traders to offer crude oil higher.
The oil futures markets are dominated by professional traders and hedgers, including industry players taking positions to counter physical exposure and hedge funds speculating on long- and short-term course. Retail traders and investors have less clout in this industry than in more emotionally charged markets like precious metals or high beta growth stocks.
When crude oil prices rise sharply, retail's reach grows, drawing capital from small investors attracted to these markets by front-page headlines and table-pounding talk show hosts. The resulting waves of greed and fear will amplify underlying trend momentum, leading to historically high-volume climaxes and collapses.
West Texas Intermediate Crude and Brent Crude are the two main markets for crude oil. WTI is sourced from the Permian Basin in the United States and other local sources, while Brent is sourced from more than a dozen fields in the North Atlantic. The sulfur content and API gravity of these varieties vary, with lower levels being referred to as light sweet crude oil.Although WTI was more actively traded in the world futures markets in 2017, Brent has been a better predictor of global pricing in recent years.
Understanding the past crowd behavior and nature of crude oil market will help predict the future behavior as well.The long-term chart shows previous years ups and downs along with the reasons for the same. It could be due to the Dollar sign or inflation occurring in the states.
The WTI light sweet crude oil futures contract (CL) on the New York Mercantile Exchange (NYMEX) trades over 10 million contracts a month, providing excellent liquidity. Due to the 1,000 barrel contract unit and.01 per barrel minimum price fluctuation, it carries a relatively high risk. 4
There are hundreds of other energy-related items available on the NYMEX, the vast majority of which appeal to skilled speculators yet very few private investors or traders.
To make reliable profits in the crude oil and energy markets, traders must have exceptional skill sets. Market participants interested in trading crude oil futures and options must understand what drives the commodity, the dynamics of the crowd, long-term price background, and physical differences between grades.
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