Crude oil prices are traded around the clock and are the most liquid commodity asset class. There are many financial instruments that will give you exposure to the price of crude oil prices and allow you to profit from both upward and downward changes to prices. Crude oil prices are based on specific locations, with U.S. and U.K. benchmarks the most liquid crude oil prices traded in the capital markets. You can analyze prices by evaluating both the fundamental and the technical environment which makes crude oil prices one of the key commodities that traders analyze. This is how to invest in oil, and use many techniques to increase your success.
Most investors speculate on the direction of West Texas Intermediate crude oil which is a type of crude oil trade in the United States. This specific crude oil is quoted at a location called Cushing Oklahoma, and is the global benchmark for crude oil trading. The NYMEX futures contracts that are physically settled require that traders take delivery of this asset in Cushing. There are also futures contracts that are financially settled, which is the benchmark for the over the counter products traded via forex brokers throughout the globe.
A second global benchmark is Brent oil prices. These are priced in the United Kingdom. Brent futures are priced in U.S. dollars despite their delivery point, as the dollar is considered the global benchmark for quoting of oil prices. The Brent contract can trade as a premium or discount to U.S. WTI. Brent is considered a global benchmark and is more tightly tied to changes to local benchmarks such as Oman or Dubai oil prices. Many forex brokers will trade Brent oil but the vast majority have their products tied to WTI crude oil prices.
Supply and Demand Analysis
Investors determine the value of crude oil prices based on multiple types of analysis including supply and demand, the value of the dollar, and technical analysis. The supply and demand component are a function of inventories reported by several regulated bodies including the U.S. Department of Energy, the American Petroleum Institute (API), OPEC and the International Energy Agency (IEA).
Each of these agency report inventory levels of crude oil and products in the United States, and their report will be market moving. Every week, the Energy Information Administration which is part of the Department of Energy, and the API will report their estimates of crude oil and product inventories along with demand estimates. OPEC will report its view of the oil markets on a monthly basis along with the IEA.
In addition, traders will evaluate their view of the U.S. dollar since crude oil is priced in dollars. If value of the dollar moves higher then oil prices become more expensive in currencies that are not the U.S. dollar which means that oil prices will have to move lower to keep the value of the price in another currency stable. So, if the dollar moves higher, many times oil prices will move lower.
Another way traders evaluate oil prices is to use technical analysis. This is a practice were traders look at past price action to determine future price movements. There are many forms of technical analysis, which can help you in placing a trade.
Crude oil prices are one of the benchmarks used by investors to engage in commodity risk. Crude oil prices are quoted in dollars which makes evaluating the dollar, along with supply and demand, a key part of learning how to trade the crude oil markets.