IMAGINE the world without crude oil: no cars or trucks creating noise and traffic jams, no air pollutions, and perhaps – no wars. Crude oil is one of the most important natural resources man has ever discovered. Without it, the world will stand still.
In a nutshell, crude oil is as important as food and water, the air we breathe, and the land to which we build structures to provide us shelters. Life is simply incomplete without it.
The Importance of Oil and Oil Trading
Crude oil trading has been around since the time of the Pharoahs of Egypt but the invention of the internal combustion engine and the growth of the automotive industry paved the way for its demand.
Crude oil trading today is the yardstick of a global market that encompasses its refinement, extraction and economic use, providing jobs to people in many industries. Crude oil trading spans continents, culture, social and political landscapes.
Plastics, solvents, fertilizers, chemicals – these are all byproducts of crude oil and oil trading. These things play a vital role in maintaining our modern lifestyles. As a result, despite worries about oil being a non-renewable natural substance many countries rely largely upon it.
Since significant oil reserves are found in only a few countries, the market price of crude oil can be affected by national and international politics. The market value of crude oil can be impacted by national and international politics and not all countries have key oil reserves.
Therefore, any change in foreign policies and economic conditions must be carefully noted by traders when forecasting future oil prices. The United States’ war in Iraq is one recent example.
Oil Powers the World
Oil is a form of energy that makes the world go round. Oil traders must be fully conscious that demand always soars while supply is never enough. A deep knowledge of how supply and demand goes is very important in oil trading.
OPEC oil producing countries such as Venezuela, Iran and Nigeria are now reaching their oil trading peak limit and so are non-OPEC countries such as Mexico and those in the North Sea.
Crude oil is named individually and is branded according to each ones measure of gravity (API) or depending on its origin and content. The API can represent light or heavy crude. If it is light, it will produce a bigger valuable gasoline yield more than heavy crude would.
Crude oil’s sulphur content is just as significant as it represents whether or not its value can meet environmental standards in consuming countries.
Low sulphur crude oil is categorized as sweet crude and crude oil with high sulphur content is sour crude. Nevertheless, sweet crude is highly in demand because it commands a higher price.
The Thirst for Oil
The world, in total, consumes about 63m bbl of oil per day. Saudi Arabia is the biggest oil consuming country with 10.6 million barrels per day. Russia comes next with 8.3 m bbl per day. The United States, is at third with 6.7 m bbl per day, followed by Iran and China, with 4.2m and 3.9m bbl per day, respectively.
Most crude oil comes from its two sources of production in the world and accounts for the movement in most of the oil trading – the West Texas Intermediate (WTI) and Brent. Each producing geographic site is critical as each gauge the cost of transportation to the nearest oil refinement facility.
WTI generates light, sweet crude oil that is distributed to Cushing, Oklahoma. It has the most liquidity in the world and is the premier resource for the North American oil trading ventures.
Brent produces a merge of different types of oils coming from the North Sea that is sent to Sullom Voe in the Shetlands, United Kingdom. It is the most liquid form in the world right after WTI and sets the basis in terms of the European pricing of Oil.
NYMEX, or The New York Mercantile Exchange, is the largest global commodity exchange for Oil and is divided into two divisions – the NYMEX and COMEX division.
Trading in energy futures happens at the NYMEX. Options and Futures deals are made at NYMEX for heating and natural gas, crude oil, electricity, coal, metals, propane and gasoline. Oil trading is not the same as trading Forex, but it will require a wealth of knowledge of the business as you do with Forex and its currencies.
The Trick of the Trade in Oil Trading
It is very important that the facts mentioned in oil trading are validated and clearly understood when choosing to trade oil. Knowing current events and political scenarios around the world will also help in determining the right steps to take before engaging in the oil trade.
The trader must also be wary at all times of fluctuations as they can help raise extra profits in oil trading. Unlike Foreign Exchange, oil trading does not have such frequent price changes as currencies do, but it tends to shift significantly depending on the conditions and availability of oil.
It is therefore very important as an oil trader to be constantly on the lookout for developments in the global oil trading industry.
Oil trading, anyone?