James Trescothick

With more than 20 years of experience in financial service industry, James is our Senior Global Strategist and the co-producer and presenter of easyMarkets educational videos. When he is not working on educational programs or preparing webinars, you can find him with the easyMarkets team giving seminars around the world.

Video Script: Discover Oil Trading

When we fly, when we drive home, when we turn on a light and keep warm, we are using one of the most sought after commodities in the world: Crude Oil.

Hi, I’m James and I would like you to join me as we discover the markets. Today we are looking at oil trading; Crude oil is a commodity we all use in our day to day lives and often it tends to be the headliner on the news. In particular, we will talk about WTI oil, with hope that at the end of this video you will have a better understanding of what to look for when you are trading this commodity.

First thing first; where does oil come from?

Crude oil is a so-called fossil fuel, which most scientists believe to be transformed from remains of plants, tiny marine organisms and larger animals like the dinosaurs which mixes with mud and sand and ferments over millions of years and becomes that very substance that drives our world.

WTI which stand for West Texas Intermediate, is a grade of crude oil which is described as light and sweet and is a physical commodity. It tends to be newsworthy because it is used as a benchmark for oil trading prices.

Crude oil can present a lot of potential trading opportunities due to its high liquidity and its unique positon in today’s global economic and political arena.
So what are some of the key areas you need to be aware of when you are looking to trade this commodity?

First and foremost; supply and demand

As long as demand is exceeding supply the value of oil tends to do well, when supply exceeds demand we tend to say the opposite effect.
Example: in 2008 WTI’s benchmark price as at $150 a barrel due to a fall in supply and high demand. When the global economy crashed into recession, demand dropped while supply remained consistent, within a year prices fell by 50%.

How can you monitor supply?

Nothing is ever certain, but one way of keeping an eye on supply is through the weekly Crude oil stockpile numbers released by the EIA which are indicators of supply levels.

Another major area to watch out for is OPEC and its meetings

OPEC is the Organization of Petroleum Exporting Countries and it is an intergovernmental organization of 13 oil producing nations including Saudi Arabia and Kuwait. This organization accounts for an estimated 42 percent of global oil production, so its decisions on its supply levels tends to have a major influence on oil markets.

Oil is behind many of today’s political wars so it’s a good idea to be mindful of potential conflict or political unrest occurring in oil producing nations as it will most probably have an impact on supply.

Market sentiment is another strong indicator, as with all kinds of trading, knowing whether the market is bullish or bearish can be an indication of the potential effect it could have on WTI.

Economic indicators such as the following can also help you assess potential future demand:

  • GDP changes, Higher growth can create more demand
  • Industrial production/ manufacturing production, growth in the industry could result in more demand for oil

To sum up things which can help you if you are looking to start WTI crude oil trading:

  • Supply and demand
  • US EIA Crude Oil Stockpiles
  • OPEC decisions on supply
  • Potential conflict or political unrest in oil producing countries
  • GDP and Industrial production growth
  • And Market Sentiment

Join me next time, when we start to look at the psychology of trading,
Till then thanks for watching, you trade safe!

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