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What is Oil?
Oil is a major commodity in the market, not only because it is widely traded, but also as a global energy source. Crude oil, or petroleum is a fossil fuel which is made from ancient organic matter. It can be distilled in a variety of fuels such as diesel, gasoline and lubricants. Needless to say, since each of these are used in a variety of ways in several industrial applications, the demand for crude oil is exceptionally high all the time.
Crude oil is extracted from underground reservoirs by means of drilling. The greatest suppliers include Saudi Arabia, Russia and the USA. The US’ West Texas Intermediate (WTI) and the UK’s Brent Crude are the two main benchmark global prices for crude oil.
It is also important to mention the OPEC, that is the Organisation for Petroleum Exporting Countries, which was set up in the 1960. This is responsible for the setting of production quotas for the various member countries so as to ensure that the prices of crude oil are kept at profitable levels. However, it is worth mentioning that despite the fact that OPEC controls a very large percentage of oil supply, the world’s largest producer remains the US.
Over the years there have been several changes in the price of crude oil, as while OPEC called the shots most of the time, the demand was mainly driven by the US. Moreover, since over the last decade there have been numerous technological advancements, accompanied by deregulation, OPEC reacted by colluding with a number of countries such as Russia, and production quotas emerged so as to try to stabilise the prices.
There are various factors which affect the prices of crude oil. While the supply and demand are primary factors, they are affected by other aspects such as changing consumption patterns, outages and production cuts as well as seasonality issues.
The USD and the price of oil have an inverse relationship. When the USD is rather weak, the price of crude oil is higher in terms of the dollar. As the US has been a net importer of oil, this led to a rising oil price.
One can also mention a rather predictable link between the price of oil and the Canadian Dollar. Canada exports around three million barrels of oil every day to the US. Thus a very big demand for CAD results. Consequently, if the US demand increases, the oil prices increase as well, and this could result in a fall in the USD/CAD.
There are various reasons why one may wish to trade crude oil. First of all oil is a volatile and liquid market and as mentioned earlier it is the most traded commodity in the world. Its volatile nature makes it ideal for swing and day traders. In fact such traders tend to keep a watchful eye on the latest oil pricing news.
Crude oil is traded in massive volumes and it is a very liquid market. As a result one can open and close trades easily, and often at a lower trading cost. Oil can also be traded as part of a hedging strategy as it is ideal to mitigate against volatility. It is also a great way to diversify one’s investment portfolio.
Crude oil is extracted from underground reservoirs by means of drilling. The greatest suppliers include Saudi Arabia, Russia and the USA. The US’ West Texas Intermediate (WTI) and the UK’s Brent Crude are the two main benchmark global prices for crude oil.
It is also important to mention the OPEC, that is the Organisation for Petroleum Exporting Countries, which was set up in the 1960. This is responsible for the setting of production quotas for the various member countries so as to ensure that the prices of crude oil are kept at profitable levels. However, it is worth mentioning that despite the fact that OPEC controls a very large percentage of oil supply, the world’s largest producer remains the US.
Over the years there have been several changes in the price of crude oil, as while OPEC called the shots most of the time, the demand was mainly driven by the US. Moreover, since over the last decade there have been numerous technological advancements, accompanied by deregulation, OPEC reacted by colluding with a number of countries such as Russia, and production quotas emerged so as to try to stabilise the prices.
There are various factors which affect the prices of crude oil. While the supply and demand are primary factors, they are affected by other aspects such as changing consumption patterns, outages and production cuts as well as seasonality issues.
The USD and the price of oil have an inverse relationship. When the USD is rather weak, the price of crude oil is higher in terms of the dollar. As the US has been a net importer of oil, this led to a rising oil price.
One can also mention a rather predictable link between the price of oil and the Canadian Dollar. Canada exports around three million barrels of oil every day to the US. Thus a very big demand for CAD results. Consequently, if the US demand increases, the oil prices increase as well, and this could result in a fall in the USD/CAD.
There are various reasons why one may wish to trade crude oil. First of all oil is a volatile and liquid market and as mentioned earlier it is the most traded commodity in the world. Its volatile nature makes it ideal for swing and day traders. In fact such traders tend to keep a watchful eye on the latest oil pricing news.
Crude oil is traded in massive volumes and it is a very liquid market. As a result one can open and close trades easily, and often at a lower trading cost. Oil can also be traded as part of a hedging strategy as it is ideal to mitigate against volatility. It is also a great way to diversify one’s investment portfolio.