Crude oil is a raw natural resource that is used for production of gasoline, jet fuel, and other petroleum products. It’s a non-renewable resource that is normally obtained through drilling. To understand the dynamics of oil prices we need to know its history.
1847 - The modern history of the oil and gas industry started with a discovery made by Scottish chemist James Young.
The late 18th and the early 19th centuries - The creation of major oil companies in the USA, Russia, Iran, Europe that still dominate the oil industry today such as ExxonMobil, Royal Dutch Shell, and BP (British Petroleum).
The late 20th century - Power shifted from generally oil-consuming areas such as the US and Europe to oil-producing countries.
1960 - Five countries such as Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela established an organization that would control the oil market, i.e. keep prices stable, reduce oil price volatility and adjust the world's oil supply. That organization is called OPEC, in full Organization of the Petroleum Exporting Countries. Now it consists of 14 countries and accounts for 44% of global oil production and 81.5% of the world’s oil reserves.
The early 21st century - Hydro-factoring created the US energy boom, which reduced OPEC influence.
2017 - OPEC+ was created to coordinate a series of production cuts aimed at propping up the market. This + added 10 more countries, such as Russia, Mexico and others, to the negotiating table.
The oil and gas industry is still thriving despite competition from renewable sources of energy, albeit in a more volatile state than ever due to world events. To trade oil successfully, you need to know several important things.
Choose Between Brent Crude Oil (UK) and West Texas Intermediate (US)
There are some differences between these two oil benchmarks. Brent has higher sulphur content and its price sets the standard for around 2/3 of world production. That’s why it’s slightly more important than WTI, but it’s completely up to you which one to trade. WTI stands for West Texas Intermediate. This grade of crude oil is produced in North America and is referred to as “light sweet oil” because it contains 0.24% sulfur. WTI is better for petrol, Brent is better for diesel fuel. In addition, Brent usually trades with a premium to WTI, but they tend to move in a lockstep.
What drives the oil price?
Firstly, crude oil prices hugely depend on the state of global economy. We would expect the price to rise in the good times and to fall in period of global recession. Secondly, political uncertainty may have an impact on the oil production: tensions in the Middle East may disrupt production and decrease supply thus pushing the price up. Thirdly, large players in the oil market affect the price. For example, if OPEC decides to cut the oil supply, the price will increase.
How to make profit in crude oil?
Monitor the news to catch the moves of the market, as crude oil prices are constantly changing and typically volatile. Follow Brent news and WTI news to stay updated. We also make oil market weekly trading plan, where you can find successful strategies.
Start trading oil!