Risk Warning: Your Capital is at Risk.
In this guide to trading crude oil, we explain how and where you can trade this popular commodity.
We list regulated brokers and platforms that are available in your country, discuss the reasons why people trade in oil, and provide some tips for understanding the oil market.
In a hurry? If you want to start trading oil right away, here are some online broker platforms available in to consider:
Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.
Understanding Oil Trading
Despite the advancement of renewable energy production, fossil fuels still make up most of world energy usage with oil being the most used energy source.
Since the oil trading market is subject to high volatility. With volatility comes great risk of losses, as well as the potential for profits so it’s important to familiarize oneself with technical analysis tools to get a better understanding of daily oil trends
How Can I Trade Oil?
Online brokers and exchanges offer several financial instruments that allow you to speculate on the price of oil:
- Shares of oil companies
- Contracts for difference (CFDs)
- Exchange-traded funds (EFTs)
The type of financial instrument you choose depends on the following factors:
- Margin requirements
- Contract expiry dates
- Management costs
- Security costs
- Physical delivery of assets
How To Trade Oil CFDs
Contracts for Difference (CFDs) are contracts between a trader and a broker to exchange the difference in price between when a trade is entered and exited.
Leverages can be fixed or variable, based on the margin requirement of the broker.
Many CFD brokers provide the facility to speculate on the price of oil futures contracts but contract sizes are typically much smaller than standard futures contracts.
A crude oil CFD order can be for as little as 25 barrels (depending upon the firm) compared to 1,000 barrels for a standard futures contract.
How Do CFDs Work?
Please note, this is an example – not a recommendation.
Here’s an example: You’re bullish on WTI oil, so you decide to buy oil CFDs at the quoted price of $60.25 to $60.50 (the lower price is for a short contract, the higher for long).
- To buy 10 long CFDs on 3% margin, you would need $1,815 in your account ($60.50 [long price] x 10 [number of contracts] x 100 [number of barrels in a standard contract] x 0.03 [margin percent]).
- You would then “control” $60,500 worth of oil for your $1,815.
- That afternoon, you notice the price is $62.75, so you exit the trade, which now has a value of $62,750.
- You pocket $2,250 on the deal.
- If the price ticks down to $58.25, you would lose the same amount of money, $2,250, which is 24% more than you originally traded.
Oil Shares: Trading Oil Company Stocks
Shares are arguably the least complicated way to trade crude oil. You can trade equities in an oil company that you believe to become profitable at a future date.
There is usually a correlation between crude oil prices and oil company stock prices. But this is not always the case. And disasters as varied as pandemics and oil spills can make stocks plunge unexpectedly.
Interested in oil stocks? Here are the biggest listed oil companies:
|Chinese oil and gas company based in Beijing
|Shanghai (SSE), Hong Kong (SEHK), New York (NYSE), London (LSE)
|British-Dutch multinational headquartered in The Netherlands
|London (LSE), Amsterdam (Euronext), New York (NYSE)
|Multinational oil company based in Saudi Arabia
|Chinese oil company with headquarters in Beijing, China
|Shanghai (SSE), Hong Kong (SEHK), New York (NYSE)
|Headquartered in London but the USA houses the lion share of its operations
|London (LSE), Frankfurt (FWB), New York (NYSE)
|American multinational oil and gas corporation
|New York (NYSE)
Please note, this is an example – not a recommendation.
Oil ETFs: Buckets Of Oil Company Shares
Exchange-traded funds (ETFs) are also commonly used in oil trading.
Some oil ETFs are leveraged. The two types of leveraged oil ETFs are:
|What is it?
|Delivers a multiple of a particular performance index.
|Delivers a multiple of the opposite of a performance index.
|Example (Leverage = 3x)
|1.5% rise in the market results in
a 4.5% gain.
|1.5% fall in the market results in a 4.5% gain.
For example, CityIndex offers the following oil ETFs:
- ETFS 2X Daily Long Wti Crude Oil CFD
- ETFS 2X Daily Long Wti Crude Oil DFT
- ETFS 2X Daily Long Wti Crude Oil June 20 Spread, 1D
- ETFS 2X Daily Long Wti Crude Oil Sep 20 Spread, 1D
- ETFS Crude Oil CFD
- ETFS Crude Oil DFT
- ETFS Crude Oil Jun 20 Spread
- ETFS Crude Oil Sep 20 Spread
Please note, this is an example – not a recommendation.
Speculating On Future Oil Prices With Oil Futures
A futures contract is an agreement to buy or sell a quantity of oil at a specified date for a specified price.
These are standardized instruments for WTI and Brent; the standard contract is for 1,000 barrels of oil, so a $1 movement in price is equal to $1,000 in contract value.
Either party — the buyer or the seller — can draw up a futures contract to purchase or sell at a further date.
Here are a few important things to know about oil futures:
- Margin: Most oil futures contracts require about a 10% margin, which is relatively high given the cost of 1,000 barrels of oil, although margins can change depending on volatility — don’t be surprised to get a margin call on oil futures contracts.
- Physical Delivery: Futures contracts are settled by physical delivery of the crude oil, which is something most speculators don’t want to deal with. It’s important to keep track of delivery and expiration dates and to either roll the position over another month, or close it entirely before the contract expires.
- Complexity: Trading oil futures are typically for professional traders due to the high cost and complexity involved. However, CFDs provide a way to “access” the crude oil futures market.
Here are some examples of crude oil futures:
Oil Options: A Choice To Abandon The Trade
With oil options, a trader essentially pays a premium for the right (not the obligation) to buy or sell a defined amount of oil at a specified price, for a specified duration.
Crude oil options are the most widely traded energy derivative in the New York Mercantile Exchange (NYMEX), one of the largest derivative product markets in the world.
Despite their name, the underlying basis of these options is not crude oil itself, but crude oil futures contracts.
The cost of options contracts is determined by oil price volatility. Oil options traders often time market entry and exit strategies based on market volatility.
Where Can I Trade Oil?
Start your research with reviews of these regulated brokers available in to find brokers offering oil futures, stocks, ETFs, CFDs, options, and more.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Why Do People Trade Oil?
Oil trading comes with advantages and disadvantages, despite its popularity. Here’s a summary:
|✅ Potential for high-profit margins due to high volatility, especially in company shares with a smaller market capitalization.
|❌ Oil is in fierce competition with nuclear and renewable energy resources like ethanol and it is easy to lose money trading it.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
People may choose to trade crude oil over other commodities or assets. This depends on the trader’s experience and objectives. Some traders may choose to trade oil for:
- Diversification – Traders who want to add a highly volatile commodity to their portfolio may choose a high-risk, high-reward commodity like oil.
- Speculation – There are often wild swings in commodities prices; trading in oil futures and derivatives like CFDs can be a way to profit from notoriously volatile oil prices. Crude oil prices commonly move 5% in a single day. Traders must note that such volatility comes with an equal measure of risk.
Tips for Trading in the Oil Market
Every market has its distinctions — oil is no different. To make the best of your time and money while trading this commodity, here are some things to keep in mind:
- Technical Indicators: Technical analysis tools are used to understand price charts and analyze historical price patterns to get a better idea of potential future price movements. For example, Fibonacci arcs are used to find the difference between price highs and lows within a particular time frame.
- Brent and WTI: The two primary grades and pricing benchmarks for crude oil are Brent Crude and West Texas Intermediate (WTI). The difference is the location of where their oil comes from – this affects the quality and disposition of the oil. Brent Crude oil comes from North Sea oil fields, while WTI oil comes from U.S oil fields.
- Trading Psychology: It is important to study the crowd psychology of oil traders. Understanding how oil traders act in certain situations will give you a better handle on prospective market movements.
- Supply and Demand: You can keep up to date with global supply and demand metrics by following selected news outlets like Forbes and The Economist.
- High liquidity: Oil is a highly liquid market with fast-moving prices; it’s a popular medium for day traders to speculate on fast movement, although it comes with just as much risk.
Crude Oil Prices – Historical
The below charts show you the Brent and WTI crude oil spot prices, both live and historical. To find out more, visit our guide on Brent and WTI crude oil prices.
Here are a few answers to help get you started if you’re considering trading crude oil.
How do I start trading oil CFDs?
The first step to trading oil CFDs is to understand how CFDs work and to find a reliable broker. Oil CFDs are complex, as well as high-risk. Traders would be wise to build a solid understanding of the CFD market, oil trading as well as technical analysis tools before considering trading oil CFDs.
What are the richest oil companies?
According to a January 2020 report by Statista, the largest oil company by revenue in the world is Sinopec at $432bn US dollars, followed by Royal Dutch Shell at $382.97bn, Saudi Aramco in third place at $356bn, and Petro China in a close fourth at $347.76bn. You can find the share prices, along with other oil giants in the oil shares comparison table.
What are Brent Crude and WTI oil?
Brent Crude and West Texas International (WTI) are both oil grades and acting pricing benchmarks in the world oil market. Earlier in the article, we explain the main differences between Brent Crude and WTI, one of them being the location the oil comes from.
What is OPEC?
The Organization of Petroleum Exporting Countries (OPEC) is an organization that serves as a market modulator and unifier of oil trade policies. OPEC’s main role is to regulate oil supply and prices worldwide. OPEC currently consists of the following 13 countries: Algeria, Angola, Congo, Equatorial Guinea, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
- Learn More About Oil
- How to Find a CFD Broker
- Crude Oil Current & Historical Price Guide
- Commodity Trading Guide
- Largest Oil Producing States In The US
- The Highest Paying Jobs in the Oil & Gas Industry
Credits: Original article written by Lawrence Pines. Major updates and additions by Marko Csokasi with contributions from the Commodity.com editorial team.