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Investing in Brent, WTI, and Urals oils

Today, even people who are far from both the stock exchange and business are interested in the price of oil. This strategic commodity is considered to be a strong speculative asset, which provides the trader with excellent earning opportunities. But a full market analysis before trading oil futures is a must.

Oil is probably the most “nervous” trading asset of the modern market. A long-term supply/demand balance for oil is almost impossible. The main driver of oil futures trading has long been not economics, but geopolitics.

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Fundamental analysis when trading oil futures

Factors affecting the price are:

1. Geopolitical

Compliance with international agreements, supply volumes, sanctions, and production quotas, as well as the presence of military and political conflicts.

2. Natural DIsasters

The volume of proven reserves, the complexity of production, the climate, the dynamics of the extracted raw materials. In oil futures trading, the interests of the buyer (consumer) are a priority, that is, the fact of a decrease in stocks does not guarantee an increase in demand, but an increase in stocks (overstocking) is always accompanied by a decrease in quotations.

3. News background

Summits and statistics of exporting countries, statements and comments of officials (especially OPEC +), analysts, politicians, weekly reports on US reserves and the number of drilling rigs in operation, reports, and analysts from oil companies.

4. Transport and technological problems of the industry

Disruption of the processing and supply chain due to natural disasters, military and political conflicts; production growth as a result of the introduction of new technologies (for example, a decrease in the cost of extracting shale raw materials).

5. World growth rates and foreign exchange market

Dynamics of demand from industrial production. Using the USD price simplifies the analysis of world prices and the conduct of arbitrage transactions, while oil affects the USD rate,EUR and especially for commodity currencies (AUD, NZD, CAD, NOK). The rise in the dollar index puts pressure on oil prices.

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Technical analysis for oil trading

Before trading Brent or WTI oil futures, a trader must choose a trading asset – a “pure” futures or CFD.

For futures:

• It is necessary to clarify the ticker of the asset (on CME or ICE) and be sure to study the terms of the contract (“Contract Specifications”).
• Dozens of contracts are traded on the exchanges in parallel (see “Listed Contracts”), we select the most liquid ones. If the volumes of neighboring contracts are approximately equal, then we choose a longer closing period.
• We control the expiration time (especially when trading brent oil futures): futures are closed 1 month before the delivery date, this is usually the 15-25th day of the month.
• We control the last day of trading for the selected contract so as not to stay with an open deal. Otherwise, you will have to close positions in a thin market with minimal liquidity and non-standard spreads (this is at best!), And at worst, the broker will fix the deal himself at a very unfavorable price for you.
• It is recommended to transfer a deal to the next contract (close the current one and open a new one on a more “distant” futures) at least a few working days (before the expiration date) for monthly futures, and 1.5-2 weeks for quarterly ones.
• All trading strategies for Brent and WTI oil futures should take into account that instead of leverage, these assets use the concept of “collateral margin”, which can differ for different contracts, as well as the cost of 1 tick.

For CFDs (Contract For Difference, or spot oil):

• The contract carries out transactions with commodity assets without actual deliveries – only the exchange rate difference is of interest. Trades can be kept open for as long as you like.
• On the exchange market, the volumes of transactions are standardized (at least 1000 barrels in 1 contract), on the OTC market you can buy/sell any volumes.
• CFDs on WTI oil are found under different tickets, the most popular are WTI and CL, the Brent brand comes in two subtypes – BRN (based on ICE futures) and BZ (NYMEX contracts).
• Sometimes brokers “invent” their own tickets for CFDs, for example, USOIL, UKOIK, QM, WBS, XBZ, XTI, XBR, but their quotes must correspond to real futures. Before making deals, this situation needs to be checked.
• As for CFDs on petroleum products, most often, fuel oil and gasoline (ticker options – HO and RB), their underlying futures are traded only on NYMEX, therefore, they mainly depend on trends in the US economy.
• Brent and WTI do not use any special indicators of the brent and WTI oil futures trading strategy: only all standard technical analysis tools. For volume analysis, only data on real exchange volumes are needed, tick volumes only distort the situation.

Small speculators rarely survive in oil futures trading: working with oil is strongly discouraged for beginners. Any information that at least somehow relates to reserves and production, processing and transportation, taxation and duties, war and politics, together with consumption forecasts, as a result, forms commodity quotes.

An oil futures trading strategy should take into account the high volatility of this market, which encourages speculators, but at the same time requires solid knowledge, tough money management and active erudition from the trader.

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