July 22, 2024

Oil: trading Commodities in the Forex market

LQDFX Forex news Blog: Oil: trading Commodities in the Forex market

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Oil is the most popular commodity among traders. Its price has a dramatic impact on the global economy.

Oil is used for manufacturing and energy production. This type of fossil fuel is finite and its supply is variable. As such its price has a dramatic impact on the global economy. Oil market can be a volatile fast-moving market.

Brent crude is the world’s benchmark for oil. Almost two thirds of oil contracts traded are Brent. WTI is America’s benchmark oil. It is slightly sweeter and lighter from Brent.

Crude Oil

Crude is a liquid fuel – the petroleum – and the world economy’s primary energy source. The most common method of crude extraction is drilling. As demand rises, and reserves become depleted, oil sands could provide one of the last viable methods for extracting crude.

Saudi Arabia, Russia, United States, Iran, and China are the top five producing countries. United States, China, Japan, Russia, and Germany are the top five consuming countries. At the current rate of consumption, experts estimate that worldwide reserves will become extinguished by 2039.


Oil: trading commodities in the Forex market

Commodities are the actual physical goods like crude, corn, soybeans, gold, etc. Futures are contracts of commodities that you may trade at a futures exchange. Some people feel more comfortable with certain types of markets. Some people like commodities because it is a physical market they can relate to.

In order to trade commodities, you should educate yourself on the futures contract specifications for each commodity. Commodities have the same premise as any other investment – buy low and sell high. The difference with commodities is that they are highly leveraged. Further, they trade in contract sizes instead of shares.

Trading Oil, whether it is Crude (WTI or US Oil) or Brent (XTI or UK Oil) is different than trading currencies. It is one of the most liquid commodities in the world, meaning high volumes and clear charts.

Oil Price drivers

Oil prices are significantly influenced by the balance of supply and demand. There are two major consortium: OPEC and OECD. OPEC is the group responsible for producing around 40% of the world’s commodity. OECD is accountable for just over 50% of the world’s demand.

Traders often look to gauge the level of consumer demand by looking at the relative in global economies. They usually monitor GDP, retail sales, consumer spending, etc. and then seeing how this stacks up to projected inventories.

Sentiment in the financial markets also tends to play a key role in the price of this commodity.

In addition, oil price depends on a lot of geopolitical factors and reflects market participants’ sentiment.

Sources: Wikipedia, Investopedia, the balance

PLEASE NOTE The information above is not investment advice.