Trading In Oil

Oil trading is the buying and selling of different types of oil and oil-linked assets with the aim of making a profit. As oil is a finite resource, its price can see massive fluctuations due to supply and demand changes. This volatility makes it extremely popular among traders.

You can use CFDs to trade on oil’s spot price, or the prices of oil futures or options contracts, without having to own any actual oil.

1. What is the oil spot price?

Oil spot prices represent the cost of buying or selling oil immediately, or ‘on the spot’ – instead of at a set date in the future. While futures prices reflect how much the markets believe oil will be worth when the future expires, spot prices show how much it is worth right now.

2. What are oil futures?

Oil futures are contracts in which you agree to exchange an amount of oil at a set price on a set date. They’re traded on exchanges and reflect the demand for different types of oil. Oil futures are a common method of buying and selling oil, and they enable you to trade rising and falling prices.

3. What are oil options?

An oil option is similar to a futures contract but there’s no obligation to trade if you don’t want to. They give you the right to buy or sell an amount of oil at a set price on a set expiry date, but you wouldn’t be obliged to exercise your option.

There are two types of options: calls and puts. If you thought the market price of oil was going to rise, you might buy a call option. If you thought it was going to fall, you’d buy a put. You can also sell call and put options, if you wanted to take the opposing positions. Selling options can generate income in quiet markets, as you receive their value at the outside of your trade. But be careful – this is your maximum profit, and you could lose far more if the market goes against you.

Learn what moves the price of oil

The price of oil is primarily moved by the relationship between supply and demand. When there is a demand for oil that outstrips its supply, the price of oil will rise. But if demand falls and supply floods the market, the price of oil will fall.

There are a huge number of factors that can impact oil supply and demand, we’ve taken a look at four of the most common below.

Factors affecting oil supply and demand

The influence of OPECGlobal economic performanceOil storageAlternative energy sources
Countries within the Organisation of Petroleum Exporting Countries (OPEC) produce a large share of worldwide oil supply. The group sets production levels to meet global demand, and can influence the price of oil by increasing and decreasing output.In periods of economic growth, the demand for oil increases to meet the needs of industries such as energy, transport, manufacturing and pharmaceuticals. If demand outweighs supply, then the price of oil will be driven up.When the demand for oil fails but production continues, there will be a surplus of oil, which is diverted into storage facilities. But, there are limits on the amount of oil that can be stored. As these tanks fill up, concerns about surplus oil will impact market prices.As climate change moves to the forefront of global conversations, energy companies are increasingly under pressure to find new ways to generate power. The move toward alternative resources – such as solar, wind and hydroelectric – could lower demand for oil.
During the 2020 Covid-19 pandemic, OPEC and its allies agreed to cut production rates to stabilise prices. But a disagreement with Russia – a non-OPEC country but large exporter – caused a sheer drop in the price of oil.However, if the economy is in a period of recession, demand for oil will fall and lead to lower oil prices if production continues.For example, in April 2020, traders’ worries over tightening oil-storage capacity amid the coronavirus caused crude oil futures to fall dramatically. At one point, the price of oil became negative for the first time.
Oil traders often use economic data releases to understand the health of an economy – such as GDP and employment figures.

Create your oil trading account

Simply fill out our online form to open an account – there’s no obligation to add funds until you want to place a trade.

Try on Demo

Find your oil trading opportunity

You can trade a variety of oil markets with including popular crude oils WTI and Brent Crude, as well as no lead gasoline and heating oil.

The best way to identify an opportunity is to keep an eye on breaking news and key price levels, using our range of tools and resources:

Expert analysis

Get technical and fundamental analysis straight from our in-house team

Trading alerts

Keep your finger on the pulse with unique price and economic data alerts

Trading signals

Get actionable ‘buy’ and ‘sell’ suggestions based on analysis

Technical indicators

Discover price trends using popular indicators such as MACD and Bollinger bands

Open your first oil trade

Now that you know how you’ll trade and what you want to focus on, it’s time to open your first position.

You’ll need to choose whether to buy or sell the market – depending on whether you think oil will rise or fall in price – and decide on your position size, which will determine the margin you pay.

This is also be a good time to think about how you’ll mitigate risk. We offer a range of solutions for risk management, including stop-losses and limit-close orders – these are used to close trades at predetermined levels of loss and profit respectively.