Energy Products Trading
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An advantage of trading commodity CFDs such as crude oil with AvaTrade is the benefit of trading freely without owning the actual asset. This gives you the flexibility to trade against the price movements without having to buy or sell the actual instrument. If you believe the price will likely go up or down, your profit and loss in trading CFDs is decided and calculated by the difference in the price at which you buy and sell.
A trader can also benefit by a short position, which is when a trader sells at a given price with the intention of purchasing at a lower price at a later date.
|Exchange||Trading Hours (GMT Time)|
|CBOT||00:00-12:44 & 13:30-18:14|
What is petroleum
Petroleum, also known as crude oil, is a fossil fuel. It was formed from the remains of plants, algae, and bacteria. During millions of years of extreme heat and density, they were transformed into carbon rich resources which are the raw material for fuel and other products.
Petroleum is a mixture of hydrocarbons and paraffin in some cases and in other aromatics and cycloparaffins. Usually found in deep rock strata but sometimes near the earth’s surface. When it is mined, and refined, hundreds of petrochemicals are made into many different products. Crude petroleum is made of approximately 80% carbon compounds, and a combination of hydrogen, nitrogen, oxygen, and sulfur.
Transportation Sector: Most of the oil consumed today and in the future, will come from the road transportation sector (based on the World Oil Outlook WOO). In 2015 it accounted for 45% of the overall demand, and is expected remain at this mark until 2040. The second largest contributor to oil demand is the construction and mining industry consisting of iron, steel, glass and cement production. Following them comes the sectorial industry, this is expected to slow down as the world moves closer to a service oriented economy.
The fourth sector demanding the most oil is the residential/commercial/agriculture industry which accounts for about 11%. This industry demand is expected to remain the same over the next 20 years. Other industries such as aviation is expected to grow, where demands in the electricity generation sector should remain as is starting around the 5.3 mb/d, however in the long run expected to decline.
Despite a slower economic growth, China is forecasted to increase their demand for oil in the coming years. And India is becoming the world’s fastest growing consumer of oil with rising incomes and a rising numbers of cars. In Brazil, more oil will be required since they are the leader of the chemical market and production of polyethylene, the main raw material for plastic production.
|Instrument name||MT5/MT4 Symbol|
|Crude Oil CFD||CrudeOIL|
|Brent Oil Trading||BRENT_OIL|
|Natural Gas CFD||NATURAL_GAS|
|Heating Oil CFD||HEATING_OIL|
What Influences the Oil Market Price
Oil prices change daily and are determined by traders who bid on oil futures contracts. This contract is an agreement that gives traders the right to purchase oil at a set price based on the projection made. Both the buyer and seller set delivery date in the future at the set price.
There are several factors that traders consider.
- Oil Demand: Estimates are provided by the Energy Information Agency; seasonal considerations are taken into account. As demand increases the price should go up.
- Current Supply: OPEC supply and the US shale oil production are analyzed. As supply increases the price should go down.
- Access to future supply: This depends on oil reserves in the US refineries, and the world. These reserves can be retrieved easily if prices get too high.
- World Crisis: A potential crisis could increase oil process since traders worry a war or famine for example could limit the overall supply.
- Man-made disasters and natural disasters such as hurricanes, floods, and oil spills can all influence the price of oil and the world supply of oil inventory.
- Currency strength: Most Energy products are priced in USD, and thus it would be wise to monitor the dollar index in order to better forecast the price dynamics.
For new and experienced traders interested in trading energies and oil, AvaTrade has many additional services and benefits to help you get started. Educational tools, including our Trading For Beginners articles to help you succeed. Copy trading platforms including Zulu Trade and Duplitrade. Professional customer service and dedicated account managers for any questions you may have, and you can now chat directly with them from our new AvaTradeGO app anytime.
Main Energies FAQ
What is energy trading?
Energy trading involves trading the different energy commodities like oil, natural gas, heating oil, gasoline, or even electricity. Energy commodities tend to be quite volatile, making large price swings. They also tend to trend quite well. Both of these characteristics make energy trading the choice for traders who are looking for large profit potential. When adding in the leverage possible with CFDs on energy commodities these are an ideal choice for the aggressive trader.
How do I trade energies?
There are a number of ways to trade energy commodities, including via futures, ETFs, or indirectly through equities. One of the most excellent ways to trade energies is with CFDs. These provide traders with easy access to the market, low fees, high liquidity, and excellent leverage. In order to choose the proper direction to trade it is necessary to learn how the energy markets are correlated with economic data, as the energy commodity markets tend to react quite strongly to certain economic data points.
What is the best energy to trade?
The volatility and liquidity in oil markets make them an excellent vehicle for trading in the energy markets. Oil prices can easily change by several percentage points in a single session. That opens up large opportunities for traders. For example, the volatility in crude can be exploited through a derivative strategy. These consist of simultaneously buying and selling options. One strategy called a long straddle is when the traders buys both a call and a put with the same strike price. This strategy is profitable as long as there is a large move in price, no matter whether it is higher or lower.
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