How to trade the oil markets?


There are several ways to trade and invest in the oil markets Oil, as a commodity
Oil ETFs Oil & gas indices and shares in the individual companies Trading the price of oil is the most common
way. There are many classifications covering varying degrees of quality and sulphurous
content, but two benchmarks are widely used: Brent and US Light Crude. Brent is the classification that covers oil
that has been produced in Europe since 1976. It was named after the Brent field off the
north eastern tip of Scotland which was run by Shell and the company that became Exxon
Mobil. US Light Crude is a mixture of oils that come
from North America, the most prominent being West Texas Intermediate, or WTI. The disparity between Brent and US Light Crude
has been kept steady over the years with US oil mostly at a small premium to Brent, but
this has been flipped in recent years because the Libyan crisis in 2011 led to an
increase in supply from North America. Oil ETFs, or exchange traded funds, are often
used to gain exposure to the oil market. Unlike buying into a single stock, an ETF charges
fees which will eat into the overall fund performance. The indices are a way to trade a group of
similar companies such as oil and gas producers or the equipment service companies. Finally, company shares themselves.
Selecting which shares can be a complex process as there are different sorts of businesses.
An upstream company is involved in exploration and production. These companies are vulnerable
to a drop in the price of oil. Midstream is processing, storing and transportation. And downstream concerns itself with refining
the crude oil. These companies tend make more money when the oil price is low. The big multi
nationals are often exposed to all areas, but some of the smaller oil businesses are
specialists. There are traditional oil companies that drill
and recover oil in a conventional way then there are those that employ new technologies
like fracking. There are also the oil field service companies
that provide and operate rigs. Because of the complexity and vast array of
options, spread betting is often a good way for traders to speculate on crude price volatility
without a direct relationship to the underlying asset and so there is no oil contract to worry
about, leaving the trader to focus on pure price action. But whichever way you choose, it’s a sector
will a wide variety of opportunities.

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