Oil Rallies as US Crude Stocks Decline in Tight Market

The United States is the largest consumer of crude oil in the world. Spurred by strong demand in the US and global supply shortage, oil prices have reached a new high. On 26th October, Brent crude was selling at $86 a barrel, and US oil was up by 0.7% to $83.96.

According to Goldman Sachs, Brent could likely go over $90 a barrel. Larry Fink, Founder, Chairman and Chief Executive of Blackrock – the world’s largest asset management company – said there was a high likelihood of oil reaching $100 a barrel. With oil prices soaring high, it could be an interesting time ahead for those who invest in oil prices as CFDs.

Crude oil prices in the US have risen

Crude oil prices in the US have risen due to short supply. OPEC (Organization of the Petroleum Exporting Countries) is maintaining a slow increase in crude oil supplies as demands in the US have ramped up. Refiners worldwide have also been increasing output due to high margins.

Oil prices rallied in the US when the US Energy Information Administration announced that crude and fuel inventories were tight. It also announced that, in three years, stocks of crude oil at the Cushing, Oklahoma storage facility had dipped to an all-time low.

Traders who invest in oil prices were faced with a period of opportunities and risks while oil was heading upwards. In the time that followed, oil prices had decreased as a decline in natural gas and coal prices had also put oil under pressure. However, some analysts predict that oil prices may rally further if OPEC sticks to its plan of gradually increasing output despite demands reaching pre-pandemic levels.

How to invest in oil prices

Those who wish to invest in oil could either make a direct investment in oil as a commodity or invest indirectly in various oil-related equities, such as the price movements of ETFs. These CFD investments are available through a broker or an online brokerage account and allow you to take advantage of price changes in both directions – increases as well as decreases – without having to purchase the underlying asset.

Crude oil provides energy and petroleum products to the global market. Investors can speculate on oil prices either by trading in oil derivatives or USO exchange-traded products that track the price of crude oil. You can also invest in oil prices indirectly by trading CFDs of oil service companies and oil drillers, or ETFs specialising in this sector.

Crude oil is also called black gold due to its high value. Compared to other commodities like base metals and precious metals, crude oil is also very volatile. The global economy relies heavily on crude oil and trading this commodity on exchanges has proven popular over the years. Crude oil can be considered the engine that drives economic growth in both developed and developing nations.

Here is how you can make more informed trading decisions when it comes to trading crude oil:

Understand how the supply and demand of oil works

To make the most of investing in crude oil, you should understand how demand and supply can affect crude oil prices. Production at various oil facilities globally and the demand for the commodity largely depends on the global economic output and the ability of the countries to buy it in large quantities. For instance, if there is an oversupply of crude oil, demand falls, which also causes a drop in oil prices. In contrast, stable production allows for higher price bids. As an investor, it is vital to keep track of such changes round the clock.

Develop a strong trading strategy

Just like you need a strong trading strategy when investing in the equity market or mutual funds, investing in oil prices as CFDs also calls for a strong trading strategy. If you are new to this form of trading, start by following experts who study the geopolitical scenarios and predict their impact on crude oil and trade prices. A solid trading strategy driven by hard facts rather than emotion is, therefore, necessary for optimising your CFD oil investment decisions.

Understand the difference between different types of crude

 Do you know the difference between Brent and West Texas Intermediate (WTI) crude trades? Brent is an offshore-produced oil, while WTI is produced in the US through oil drilling and fracking. Trade prices have begun to fluctuate thanks to higher WTI production and output compared to offshore Brent. It is therefore advisable to understand the performance of both before you make an investment.

 Pick your venue

According to Investopedia, per month, the NYMEX WTI Light Sweet Crude Oil futures contract conducts over 10 million contracts and offers high liquidity. It is also high-risk , owing to its 1,000-barrel contract and .01-barrel minimum price fluctuation.

The US Oil Fund is also a popular choice for those who want to invest in oil prices. The daily volume exceeds 20 million shares. Oil companies, as well as sector funds, offer diverse industry exposure, with various exploration, production and oil service operations having different opportunities.

Trading in energy markets and crude oil takes time and skill. For CFD trading in crude oil, you need to learn what moves the commodity, geopolitical scenarios, price history, and physical variations between different grades.


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