How to Invest in Oil Online - Make Money Online

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How to Invest in Oil Online

Oil prices fluctuate daily and provide an excellent instrument to trade online.  Oil trading takes place around the globe, 24-hours a day, 6-days a week.  There are many strategies that you can use to generate income trading oil.  This includes, following supply and demand, using technical analysis as well as following geo-political events.

Oil trades around the globe, and the most liquid oil benchmarks are West Texas Intermediate crude oil and North Sea Brent crude oil.  Where WTI is more of a North American benchmark, Brent is considered a global benchmark.  West Texas Intermediate is a physical light crude oil, that is delivered in Cushing Oklahoma in the United States.  The benchmark has grown in liquidity since its inception in the futures arena in the 1980’s. Brent is traded in the UK, and currently is the most liquid oil contract on the Intercontinental Exchange.



When you trade futures online, you need to abide by the exchange rules.  The most liquid WTI futures contract is a physically delivered contract, which requires the seller to deliver the contract specifications to the buyer when the contract expires.

There are also non-deliverable WTI and Brent contracts both on the futures exchanges, as well as, with Forex brokers. These over the counter products provide an investor with only the profit and loss associated with trading oil, and eliminate the need to deal with delivery.

Strategies

There are several strategies that are used to speculate on the direction of oil prices.  Many use fundamental analysis which include evaluating the inventory levels of crude oil globally, or within the location of the benchmark such as the United States which is the world’s largest consumer of crude oil.

For example, on a weekly basis the Energy Information Administration, which is part of the U.S. Department of Energy releases its weekly inventory report. This report reveals increases or decreases in the inventory position of crude oil, gasoline and distillates (which is heating oil or diesel fuel). The report also reflects demand for petroleum products.  Experienced oil investors generally focus on the contents of the report relative to expectations.  For example, if analysts are expecting crude oil inventories to decline and they increase, there is a strong likelihood that prices will move lower.

Another type of strategy that is also employed, sometimes in conjunction with fundamental analysis is technical analysis. This is the study of historical price action and helps traders determine levels of support and resistance, as well as, patterns that can be recognized.  Momentum studies, such as the moving average convergence divergence index, describe accelerating and decelerating momentum. There are also overbought and oversold indicators like the relative strength index.

Politics

Geo-politics plays a large roll in oil trading.  The reason is that most of the oil produced globally is concentrated in the Middle East.  These producers have formed a cartel called OPEC, and attempt to manipulate prices by increasing or decreasing output.  The countries that make up the cartel are considered unstable, and much of their economic prosperity is based on the price of oil.  When geo-political unrest rears its ugly head, oil prices can become volatile.

Oil prices are the most liquid commodity. There is tremendous liquidity, around the clock and different instruments that allow you to speculate on the future direction of the market without having to accept physical delivery of oil.
How to Invest in Oil Online How to Invest in Oil Online Reviewed by Dhanur Chauhan on 4:54 AM Rating: 5

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