Introduction to Oil Trading
In the past, agricultural products such as wheat were quite popular in the commodities market. Today, oil is one of the most actively traded products globally. Oil is a valuable product because it affects all aspects of the world economy. Crude oil affects the economy regarding transportation and production of consumer goods. Before investing in oil, you need to understand some important information about it that enable you to make well-informed trading decisions. The following are some of the things that you should know about oil.
Types of Oil
Even though oil trade is carried out globally, it is clustered in a few regions. The crude oil that is available in a country is unique to the area. This means that oil obtained from different countries has different characteristics. A difference may occur regarding viscosity of the content of sulfur available. Countries have devised various ways of tracking the price movements of oil. Some of the types of crude oil include Brent crude, Dubai crude, OPEAC Reference Basket, Bonny Light, Urals, and West Texas Intermediate.
Cause of Oil Price Fluctuations
Particular grades of crude oil have the same trading value. These types of oil do not have to be produced in the same region. For instance, the value of 1,000 barrels of West Texas Intermediate crude oil is the same despite its origin. The movement of crude oil across the world makes it difficult for a single producer to control prices.
The addition of new resources such as U.S shale oil and the Canadian oil sands exert a downward force on the prices of oil. This downward force significantly affects demand. Oil extraction costs remain competitive when supply is low leading to high increased prices. The International Energy Agency (IEA) controls oil prices by predicting global demand and world population. Other factors that are considered by the IEA include the growth of transportation and aviation industry. Energy consumption in both developed and developing countries is also analyzed. If the demand is higher than supply, measures such as increased prices may be applied.
In 2016, the World Energy Congress estimated that there are more than 6 trillion barrels of oil shale globally. Shale oil is extracted through hydraulic fracturing. Shale oil is an essential part of crude oil supply chain. This type of oil has the potential to grow it is available in limited amounts. Some of the countries that are rich in shale oil include Russia, USA, China, Libya, Pakistan, Canada, Argentina, Venezuela, and Mexico. deltafxmarkets.com
Reasons for Trading Oil
Investing in Crude Oil is more advantageous than other traditional equities. Oil trade serves various roles such as diversification of wealth, inflation hedging, speculation, and haven. Diversifying the economy is important t because it reduces the chances o losing everything at once. Oil also retains its value for a long time making it a great investment. When Currency falls, oil still retains its value despite market changes.
Before you decide to engage in online oil trading, you should make sure that you understand the above information. Blindly investing in crude oil could leads to losses. It is important also to carry out research on countries which have huge reserves o oil.