Buying (Going Long) Crude Oil Futures to Profit from a Rise in Crude Oil Prices

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Buying (Going Long) Crude Oil Futures to Profit from a Rise in Crude Oil Prices

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CL1! Futures Chart

Ideas

There is a lot of extremely interesting action in crude oil right now. Here on the weekly futures chart, you can see that CL printed a huge bullish engulfing candle last week, as it reacted to major support at the bottom of the falling wedge pattern (in blue.) As I mentioned in last week’s crude oil analysis, crude was deep in oversold territory on the weekly RSI.

any trade below 33$ will consider that the confirmation reversal pattern still not confirmed

LIGHT CRUDE OIL FUTURES

I had an amazing trade that i did not post about from 20.23 to 26.5. I will look for a lower low at 29.75 and then short it to 27.15 This trades are the money makers and all the money is what i am investing in to education from Jsun and dopetrades Please commnet bellow if u think im making anything wrong here.

ppl blame putin,trump and saudis

Oil is close to its top. There can be one more push up but if the lines break then a B correction will have been underway. I am looking for a top. I have closed my long position already.

Important S/R zones

WEEKLY PRICE CHART and probable price projections. there are many options of analysis, I have kept it simple as possible. If X=77.00, A=42.40, B=67.00-66.00, C=19.30 THEN D= 64.00-70.00 or upto 84.00-92(D=X*1.13-1.27 OR HIGHER). FROM 19.30 higher to T1= 37.00-42.00(SUP/RES) then lower to 29.00-25.00 (supp/res), higher from here to.

CRUDE IS STILL BEARISH SO WE ARE NOT GONNA TAKE ANY TRADE AT THE MOMENT UNTIL IT GIVES US SOME CONTEXT

Thank you for reading this idea! Hope it’s been useful to you. Remember this analysis is not 100% accurate.Use it with your own risk

Price has broke previous supply, pulled back to make confirmed Cup & handle Pattern

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Hello everyone we are reached 20$ per barel Now I expected some correction up We are forming reversal pattern falling wedge Swing trade Best regards EXCAVO

Crude oil has printed a massive gap on the weekly chart. We can see that price has fallen to the bottom of a triangle formation, which it is currently testing. We can also see that the light crude market is severely oversold on the weekly RSI (blue graph at the bottom.) So, since crude is so deeply oversold, and price is testing known support, I think a bounce.

the price must fill the gap. Use it with your own risk

Thank you for reading this idea! Hope it’s been useful to you.

Not financial advice. I’m not a financial advisor. I’m learning to trade. Learn to trade. CL1 Daily. Maybe dealing with a false breakout at the moment here but this is what it looks like to me. Target @47 area which matches up with the target of weekly bear flag/correction. These two targets also align with the dec 18 lows. If we do breakdown, and reach that.

Who benefits from lower oil prices?

Lower fuel prices are great for the consumer, but we know that not all of the cost saving of lower crude oil and gas prices have been passed on to the general public. Oil and gas refiners prosper from lower oil prices. Like the rest of the oil industry, refiners’ revenues are down, but their profit margins are up significantly.
Refiners are using lower crude prices to widen their cut of the pump price of oil. In other words, the lower price of oil is not entirely passed down to consumers at the pump, instead the difference is enabling refiners to increase their profits.

Price Falls

Crude oil prices have been plummeting since June 2020. The initial fall was rapid and unexpected. This was because production grew faster than projections and demand deteriorated faster than expected, resulting in an excess of oil for sale in the world. Periodic rumor-fuelled rallies in the market since June 2020 have proved to be the result of wishful thinking. Recent events, such as the fall in Chinese growth projections and the end of sanctions against Iran, have given economists reason to downgrade their expectations for crude oil prices.

The lurches in the consensus of opinion for demand for oil over the past year have caused temporary opportunities for price rises at the gas pump. The retail gas industry tends to raise prices quickly when crude prices rise and drop prices slowly when crude prices fall. This variable speed of price movements has given the refineries and the gas stations opportunities to extend their profit margins.

The fall in the price of crude oil from June 2020 to June 2020 was around $80 per barrel. This shaved $1.60 off the cost of a gallon of gasoline. However, the pump price only fell by $1.20 during that period.

The Losers

High prices for crude oil from 2020 to 2020 gave great incentives to US explorers to invest in locating new sources of oil and gas. The practice of hydraulic fracturing rapidly expanded the USA’s oil production and contributed to the current glut. High sales prices meant that fracking companies could bowl into town, rich with easy money. They sprayed money around the communities they moved into and offered high prices for mineral rights and site access. Those gold rush bonanza days ended in June 2020. The price fall in crude oil did not squeeze frackers out of business, they caused them to be a lot more careful with their money.

Frackers learned to extract more oil from each rig, thus reducing the start up overhead costs of each well. The increased tightness of financing meant the idea of spending millions to get access and buy friends was off the table. A lot of the largesse of fracking has been wiped off the books and so local communities in the vicinity of fracking plays benefit a lot less from a new well, than those lucky citizens reaped back in 2020 and 2020.

Fewer rigs mean fewer workers. It also means that less equipment needs to be sold. Thus, oil service companies make fewer sales, and also require fewer employees to maintain their reduced output. Employment in the oil industry has suffered as plans get put off and exploration is cut back. As examples of this phenomenon, consider Schlumberger, which is the largest oilfield service company in the world. Schlumberger has cut its workforce by 9,000 this year. Weatherford International cut their payroll from 60,000 staff to 46,000 in 2020 and then made a further 5,000 employees redundant in 2020.

By squeezing margins and employing new technology, US frackers have been able to stay in the game. Their success at maintaining profitability at lower market prices has put pressure on conventional producers around the world to reduce profits and slash costs. So, although no producers have gone bust yet, their drive to survive has returned a lot of oil workers to the employment lines.

Unemployment reduces the wages of employed oil workers, because there are plenty of other who would fill the shoes of specialists who walk off site rather than reducing their fees. Thus, the oil industry’s workforce has become a major loser in the low crude price era.

Middle Eastern OPEC members are said to be driving the price fall in order to squeeze out their fracking rivals. This strategy has lost those governments the income they need to keep their economies running with very little alternative sources of income. They must now subsidize their governments with their foreign currency reserves. Drawing down bank deposits means there is less money available for banks to lend, thus squeezing credit and reducing global economic expansion further.

As Arabian governments start to draw down their savings, they will be forced to cut government spending. Oil producers in the Middle East buy off their citizens’ ambitions for democracy with petrodollars. Of course when the money runs out, instability will increase even further in those countries.

The Winners

The recorded fall in the gas pump price of $1.20 per gallon is a definite benefit to the American consumer. Under normal circumstances, economists would expect this saving to boost spending on consumer goods. However, this time around, people don’t seem to be spending their gas savings on buying larger gas guzzling vehicles. This may be because the trend towards energy efficiency is finally starting to lodge in the American psyche. Recent memory of economic uncertainty also seems to have made the average American nervous about spending.

An increasing fraction of American consumers has decided to pocket that saving and pay down debt, rather than splurging on household gadgets or luxury vacations. Therefore, families will also be long-term winners from the crude price fall. Parents now rate financial security over comfort spending.

By far, refiners have been the biggest winners of the crude oil price downturn. This position is reflected in the stock valuations of refining companies. The stock price of the refiners, Valero Energy went from $43.76 per share in November 2020 to $70.43 in August 2020. This rise was mainly due to the company’s surge in profits. In June 2020 the business reported a profit margin of 1.68 per cent. By June 2020, that figure had risen to 5.38 per cent. Refiner Tesoro Corporation has risen in value from $56.20 in June 2020 to $102.08 in August 2020.

As an illustration of the increased margins the refiners experienced, figures from Total S.A. show a margin of $3.75 per barrel in the final quarter of that year. Profitability took off through 2020 and the company reported its refining margins at $6.73 in the first quarter and $7.36 in the second quarter.

The oil price fall was a symptom of an excess of production. As wells kept pumping oil into a saturated market, stockholdings rose. This resulted in a shortage of storage capacity, and so the price of storage rocketed. Storage fees rose from 20 cents per barrel to 80 cents by March 2020. The shares in Vopak NV, an oil storage provider, rose by 33 per cent between August 2020 and April 2020. Kinder Morgan rose by a similar margin and rival storage companies also rose in value over the same period.

Is this Profiteering?

There are laws in place to protect against profiteering. These laws prevent gas stations from overcharging for gas during crises and natural disasters, such as tornadoes. Shouldn’t they be applied? By definition, a business can be accused of profiteering when it raises prices during awar or emergency. Although the current oil price is a matter of global economic importance, it cannot be defined as a crisis or an emergency.

In fact the pump price for gasoline is slightly cheaper than it used to be a year ago so the prices were not even raised. This is called capitalism, not profiteering and is central to a free market economy. This is the American way. If you too want to benefit from this situation you can — buy refiner or oil storage stocks.

Logistics

Profit derives from the gap between what it costs to produce something and what someone is prepared to pay for that product. No one considers himself a charlatan if he sells his home for more than he paid for it. That profit probably came from nothing more than the increase in the amount that buyers were prepared to pay and not from any decoration or maintenance work performed by the seller.

Demand for gasoline is inelastic, but supply levels can vary widely. Shortages of crude oil cause the price of crude oil to rise and excess production causes the price to fall. Thus, in the current market, refineries can force the price of their raw materials down and they do not lose sales by maintaining sale price levels. The crude oil market is currently in oversupply, but the automotive user can’t profit fully from that price-depressing factor, because they can’t pump crude oil into their vehicles. This is the classic formula for profit.

The intermediary sectors of the oil industry – transport refining and tanking – usually profit most during a crude oil price downturn. This is a common pattern noted by economists. As the gatekeepers to the consumer market, this sector gains power when producers need to compete to sell, and thus they are able to force down their input costs.

Logistics companies usually integrate the functions of refining, transport and storage, because that gives them a win-win situation. Producers that are prepared to drop their prices will sell their output to the refiners, who then have lower costs. Those that hold out for better prices need storage, thus the tanking divisions of the logistics companies can raise their prices thanks to excess demand for their services.

Oil production is slow to turn around. An oil well takes years to plan and established shipping agreements are hard to break. Over time, producers will reduce their output and put more effort into finding other regions in the world where they can send their crude oil. These activities will eventually bring supply and demand for crude oil back into equilibrium.

Although demand for gasoline is fairly fixed, long-term changes in the fuel market will eventually have an effect there too. The cost of different types of fuel is a major factor when families and businesses decide to purchase vehicles and heating systems. An enduring lower oil price will eventually increase demand for the product as furnaces, trucks, buses and cars get replaced. Higher demand for gasoline puts pressure on logistics companies to source more crude oil, which returns some power to the crude oil producers and reduces the negotiating power of refineries. Similarly, when demand rises against falling availability, the need for storage falls and logistics companies have to start pricing their services competitively in order to maintain throughput in their high-cost facilities.

The share prices of tanking giants Vopak NV and Kinder Morgan peaked in April 2020 and then started to fall. The excess profits to be made from storage already seem to be petering out. The end of the imbalance in the oil sector seems to be within view for stock investors, so margin gains of the logistics companies will now start to decline.

Conclusion

Different oil price conditions generate larger profits at different points in the supply chain. This year, and for at least another year to come, the processors, transporters and retailers have their turn to ramp up their share of the sales price. In other years, oil brokers make all the money and at other times oil producers can name their price. No matter which particular stakeholder has a periodic opportunity to profit, there is one organization that will always profit from crude oil and gasoline – the government.

Guide To Trading Crude Oil – Read It Now

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Last Updated on April 4, 2020

4 Reasons To Trade Oil

Crude oil investing has several advantages over traditional equities for certain trader classes. Depending on your investment objectives, oil trading can be used for:

  1. Diversification
  2. Safe Haven
  3. Inflation Hedging
  4. Speculation

Diversify Your Investment Portfolio

Adding oil commodities to an equities-only or fixed-income portfolio can lower the overall volatility, because there is non-correlation between these asset classes. Commodities like oil are useful in countering price movements in a traditional portfolio.

Is Oil a Safe Haven?

Commodities are helpful during periods of global economic uncertainty because they tend to retain their value even during market turbulence. Investing in oil can be a strategy against exposure to loss if the market takes a downturn.

How Does Oil Act as an Inflation Hedge?

Commodities have intrinsic value independent from currency, which means they hold their value even as the value of currency falls in an inflationary environment. This is especially true of oil, given the constant and reliable global demand.

Speculating On Oil Prices

There are often wild swings in commodities prices; investing in oil futures and derivatives is a way to profit quickly from movement in oil prices, which are notoriously volatile. It’s not unheard of for prices to move 5% or 10% in a single trading session. Wall Street speculators aren’t the only ones betting on oil volatility; many major institutional traders buy oil-linked investments for their endowment and pension funds.

Perhaps the most significant advantage of trading oil is that demand is virtually guaranteed. There may be fluctuations in supply—and therefore price—but for the foreseeable future there is demand is unlikely to flatline or disappear.

Experienced traders with a high tolerance for risk can make substantial profits on low capital outlays, especially with CFDs, but also with oil ETFs and futures contracts.

The major risk with commodities in general—and oil investing in particular—is the extreme volatility in the market. The risk of loss is high, especially with derivatives, due to factors entirely beyond the trader’s control. It is not an investment for people with risk aversion, and oil trading should be just one strategy in a well-diversified portfolio.

How to Trade Oil

Trading oil requires a bit more consideration than other types of assets because there are many product choices you can use to get into the market, from pure-play oil derivatives to oil and gas company equities. Each has its own advantages and set of complicating issues.

Most oil commodities traders will choose one of the following options:

Method of Investing Complexity Rating (1=easy, 5=hard) Storage Costs Security Costs Expiration Date Management Cost Leverage Regulated
Buy Oil Barrels 5 YES YES NO NO NO NO
CFDs 3 NO NO NO NO YES YES
Futures 5 NO NO YES NO YES YES
Options 5 NO NO YES NO YES YES
ETFs 2 YES YES NO YES NO YES
Shares 2 NO NO NO NO YES YES

Oil CFDs

One of the easiest ways to start trading is with oil CFDs.

A “Contract For Difference”, or CFD, is basically a contract between an trader and a broker to exchange the difference in value between when a trade is entered and exited. Standard leverage varies, although lower-end margins are more typical. Most 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.

CFD trades are frequently commission-free (the broker makes a profit from the spread), and since there is no underlying ownership of the asset, there is no shorting or borrowing cost. Oil is a global 24-hour market with constantly moving prices; it’s an ideal medium for day traders to profit from fast movement. It’s also a highly liquid market, so it’s easy to get in or out, regardless of the size of the trade.

Here’s how CFDs work: This is NOT a trading recommendation

You’re bullish on WTI, so you decide to invest in 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 up to $62.50 to $62.75, so you exit the trade, which now has a value of $62,750. You pocket roughly $2,250 on the deal. Of course, if the price ticks down, the degree of leverage works against you rather quickly.

CFDs are complex financial products, they aren’t available in the US and are only recommended for experienced traders. You will not own the oil itself.

We’ve reviewed dozens of CFD brokers based on 10 key criteria such as fees, functionality and security (see full list).

Plus500 is one of the top brokers for oil CFD trading.

(76.4% of retail CFD accounts lose money.)

This is an example and not a trading recommendation.

How to open an oil CFD position on Plus500 – Illustrative prices only.

  • No commission on trades (other charges may apply)
  • Free demo account
  • Easy to use (mobile-friendly) platform
  • Industry-leading risk management tools
  • Trade oil and hundreds of other markets
  • Your funds are safe – publicly listed company regulated by the UK’s Financial Conduct Authority and Cyprus’ Securities and Exchange Commission
  • No commission on trades (other charges may apply)
  • Free demo account
  • Easy to use platform & iPhone/Android apps
  • Industry-leading risk management tools
  • Trade hundreds of markets with CFDs
  • Your funds are safe – regulated by the UK Financial Conduct Authority

Oil Shares

This is perhaps the least complex method of crude oil investing; you simply purchase equities in a company you believe will remain profitable. It’s important to keep in mind that although there is usually a correlation between the price of crude and oil company profitability, this isn’t always the case—and disasters like the BP oil spill can do serious damage to an otherwise solid investment.

Interested in oil stocks? Here are the 5 biggest listed oil companies:

Current Price Overview Listings Founded Number of Employees Interesting Fact
Sinopec
Chinese oil and gas company based in Beijing Shanghai (SSE), Hong Kong (SEHK), New York (NYSE), London (LSE) 2000 350,000+ Largest oil refiner in Asia ExxonMobil American multinational oil and gas corporation New York (NYSE) 1999 80,000+ Largest refiner in the World with a capacity of nearly 6m barrels per day Royal Dutch Shell British-Dutch multinational headquartered in The Netherlands London (LSE), Amsterdam (Euronext), New York (NYSE) 1907 90,000+ Shell have over 40,000 service stations worldwide BP Headquartered in London but the USA houses the lion share of its operations London (LSE), Frankfurt (FWB), New York (NYSE) 1908 74,000+ Burmah Oil Company, the company that eventually became BP, was the first to discover oil in the Middle East Total SA French multinational Paris (CAC), New York (NYSE), Amsterdam (Euronext) 1924 100,000+ Total has over 900 subsidiaries covering all areas of energy

Oil ETFs

Exchange-traded funds or ETFs are one of the ways traders can gain a piece of the oil market. You can choose funds that track the performance of oil prices using futures contracts or funds tied to a basket of oil company equities. Here are the 5 leading oil ETFs based on their assets under management:

Oil Futures

A futures contract is simply 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 that trade on the NYMEX; the standard contract is for 1,000 barrels of oil, so a $1 movement in price is equal to $1,000. Most oil futures contracts require about a 10% margin, which is rather 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.

Futures contracts are settled by physical delivery of the crude oil, which is something most traders don’t want to deal with, so it’s important to keep track of delivery and expiration dates and either roll the position over another month or close it entirely before the contract expires.

Trading oil futures is typically for professional traders due to the high cost and complexity involved. However, contracts for difference or CFDs provide a convenient way to “access” the crude oil futures market, see below for a detailed explanation.

Oil Options

With oil options, an 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 period of time. 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 of these options is not actually crude oil itself, but crude oil futures contracts. Options in the oil market—and the commodities market in general—are more expensive due to the high perceived volatility of commodities prices.

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