Oil is an extremely popular commodity that allows experienced traders to make lots of money. Rather volatile and unpredictable, this asset is extremely valuable for the entire global economy, and the oil prices are greatly influenced by various political, financial, and technological factors you can analyze and take into account when making forecasts. In this article, we explain how the oil market works and where crude oil gets traded.
What affects the prices
Oil and refined products, including motor and power fuels, petrochemical raw materials, and a variety of others, are crucial for almost every industry around the world. The prices for the products and crude oil itself depend on the overall demand formed by all those industries and the global supply which may be affected by thousands of different political, social, and purely economic factors: wars, introduction of new laws, changes in the energy usage structure, just to name a few.
However, the oil industry also has a variety of internal factors that affect the prices, too. These include the inherent riskiness of any business that depends on exploration, the need to attract huge amounts of money as investments, the volatile nature of crude oil quality, and so on. But you don’t need to take into account any of these factors if you’re not a specialist in the field, so let’s get to the oil trading part and learn how to actually enter the market.
About the oil market
Oil and gas as standard commodities are traded on exchanges around the world. The most reputable ones are IPE and APX Group (UK), NYMEX (USA), and Nord Pool (Norway). However, now you don’t have to attend an exchange personally to place an order: traders simply tell their online brokers what to sell or buy. There are many other participants on the market besides traders and brokers, including major oil producers, large industrial consumers, dealers, and so on.
Crude oil is not that standard, actually. Any oil is a mix of various chemicals which make the product more or less valuable. To make things simpler, all oil types are divided into several grades. The most well-known of them are Brent (extracted from the North Sea), WTI (from North America), and Dubai Crude (from the Persian Gulf). These grades (called benchmarks) determine the overall prices on the entire oil market, and other grades are compared to one of these three to find out their value.
