How to start trading oil: step-by-step instructions for making money for beginners

Greetings, dear reader.

Since the 20th century, oil has become a vital raw material for any state. In order to gain access to deposits, wars are started and governments are overthrown. Millions of people die in this struggle, and thousands of rulers and businessmen earn fortunes.

Of course, no one is calling on you to stage another coup d’etat in an “oil” country. In this article I will talk about how oil is traded and whether an ordinary person can make money from it.

Cost of production in different countries

In 2021, oil once again confirmed its reputation as one of the global factors influencing the world economy. However, the extraction of black gold in the world varies greatly, both in technology and in cost.

As we can see from the table below, the cost of producing shale oil in the United States has dropped to $20 per barrel, thus coming very close to the cost of conventional production. This state of affairs is explained by the fact that shale oil production technologies are rapidly improving, and if in 2012 the cost of production using this method was about $100, then in literally 4 years it was reduced by almost 5 times.

Oil production remains the cheapest in Saudi Arabia and Iran: $4 and $5, respectively.

As for Russia, at already explored old fields, the cost of oil production does not exceed 6 dollars, while at new fields it is about 16 dollars.

What are the different types of oil and how do they differ?

Oil is produced in different parts of the world: from Arctic shelves to African deserts. It is not surprising that the extracted raw materials differ markedly in their composition and characteristics. There are more than 200 varieties of it in the world.

The most popular include:

1. Brent is a mixture of varieties mined from offshore fields in the North Sea.
2. WTI (West Texas Intermediate) is a variety produced in the state of Texas (USA).
3. Urals is a Russian brand of mixture that includes hydrocarbons extracted in Siberia, the Urals and the Volga region.

Brent and WTI grades

Marker or reference grades of oil are grades of oil with a certain composition (sulfur content, density), the prices for which are widely used when setting prices for the purchase and sale of various types of crude oil for the convenience of oil producers and consumers.

There are three main marker grades in the world: Brent Blend, West Texas Intermediate (WTI) and Dubai Crude. Quotations for these grades, published by quotation agencies, determine prices in the main regions:

• Brent, mined in the North Sea, is for the markets of Europe and Asia. Prices for approximately 70% of exported oil grades are directly or indirectly set based on Brent quotations;
• "WTI" (West Texas Intermediate), also known as "Texas Light Sweet" - for the Western Hemisphere (USA) and as a benchmark for other types of oil. In the 20th century, for a long time it was the only marker variety;
• The marker grade "Dubai Crude" is widely used in determining the prices of oil exported from the Gulf countries to the Asia-Pacific region.

Typically, marker grades are associated with a major field or group of fields, oil from which has similar properties and is publicly traded on the market with sufficient liquidity.

The standard US grade is WTI (also Light Sweet) - a light oil produced in Texas. Currently, the marker grade West Texas Intermediate is used primarily in the United States (traded with delivery to Cushing, Oklahoma), to set prices for oil produced in the United States and for some imported grades. WTI is a light (API gravity) and “sweet” (low sulfur) crude oil, making it suitable for processing into low-sulfur fuels (gasoline and diesel). WTI oil production accounts for about 1% of global oil production.

European Brent crude has a slightly higher density and higher sulfur content, but is also a high-quality crude. So Brent initially meant oil produced in Great Britain at the shelf field of the same name (discovered in the 1970s), but later it was supplemented by oil produced at three neighboring fields in Britain and Norway. Currently, the mixture includes oil extracted from 15 different fields. This brand has become a reference thanks to the reliability of supplies, the presence of several independent suppliers and the willingness to purchase it from many consumers and processors. Despite some supply issues in the past and lackluster production volumes, Brent has enough liquidity to remain a benchmark. Brent crude oil production accounts for about 1% of global oil production.

However, WTI has lower price levels, while Brent has served as the best indicator of global prices in recent years.

The price difference (spread) between these two grades was quite narrow until the end of 2010, when the two markets sharply diverged due to the changing supply and demand situation associated with the growth of production in the United States, caused by technologies of the shale and oil sectors, while Brent drilling has undergone a forced reduction. The spread between WTI and Brent has narrowed in recent years, but existing supply factors are still able to reproduce the new dissonance.

Changes in the oil storage and pipeline infrastructure in the United States are so significant that they are very likely to lead to major changes in the market in the coming years. These changes could spur growth in U.S. domestic crude oil trade and increase WTI's role as a global benchmark.

The catalyst for this transformation was a sharp increase in oil production in the United States, as well as the lifting of the ban on the export of American oil at the end of 2015. To transform from a net oil importer to an exporter, the US will have to put several key pipelines into reverse mode. At the same time, oil refiners and storage operators along the Gulf Coast are beginning to add capacity.

A number of new terminals are under construction along the Gulf Coast to serve the growing number of ships arriving to load oil bound for the international market. These infrastructural changes will lead to the transformation of the United States into a supplier of oil to the world market, capable of quickly responding to changes in demand and supply, rather than into a regional exporter. All this will allow producers to take advantage of the arbitrage opportunities that exist on the other side of the Atlantic.

Main types of oil

Hundreds of types of crude oil with different properties are produced throughout the world, but 3 of them are by far the most in demand:

• WTI (West Texas Intermediate). This is crude oil of high quality standards. Maximum volumes of gasoline and diesel are obtained from it. fuel.
• Brent is a mixture of oil from fifteen fields located at the bottom of the North Sea.
• Ural (also known as REBCO - Russian Export Blend Crude Oil). Ural oil is pumped through Russian gas pipelines stretching from Western Siberia to the Urals.

Oil from brokers

Today, oil prices are monitored even by people who have absolutely nothing to do with stock trading. This is due to the fact that the dollar is pegged to oil.

In general, oil trading volumes have a general volume standard: 1000 barrels per contract. But outside Forex, you can manipulate any volumes, even counting in tons and wagons.

At the same time, the largest volume of oil transactions is recorded on two leading exchanges: the New York and London (InterContinental Exchange) exchanges. Oil is also widely traded in Dubai, Tokyo and Shanghai, but the volumes here are several times less than in the USA and Great Britain.

Trading oil on Forex works in much the same way as trading currencies. The only difference between them is that oil and currency have different leverage and margin levels. One oil trading contract can be equal to 10, 100, 1000 or more barrels of oil. All must be priced in US dollars. Oil trading on Forex is contracts for difference, over-the-counter financial instruments that have a specific expiration date and cash settlement.

Contract For Difference (CFD) is a financial instrument that allows you to trade assets such as gold and oil, gas and nickel, cocoa and cotton, without having these goods in stock. In transactions that are aimed at making a profit from changes in the prices of certain goods, traders are not interested in the goods themselves. The only interesting thing is the difference in price. CFDs allow you to get this exchange rate difference without actually buying/selling.

How to make money on oil

Players on the stock exchange can be divided into 2 large groups:

1. Traders are trading participants who purchase an asset for the purpose of further sale. In other words, speculators trying to make money on price differences. Their main forecasting tool is technical analysis.
2. Investors are buyers who purchase an asset for a long term in order to preserve or increase capital. Unlike traders, investors are focused on long-term profits and rely primarily on fundamental analysis, not paying attention to short-term market price fluctuations.

Is oil as an asset suitable for an investor?

Unlike stocks, oil itself cannot generate dividend income. Earnings are possible only by changing the price. Moreover, the value of oil is determined only by the need for it as a raw material. In the event of a massive transition to other energy sources, its cost will drop sharply.

Although oil is called “black gold” by many, no one uses it as a store of value. That is why the asset is not of interest to investors. Its price depends too much on market conditions and does not have a stable upward trend in the long term.

Trading time

Forex oil trading hours start on Monday at 01:00 (GMT) and end at 22:00 on Friday. This applies to both oil trade from the US and the UK. We also see that there is a short period of time - the so-called “break” - it lasts from 23:00 (GMT) until 01:00. Each contract has its own expiration time. When it arrives, all contracts that have not been closed will be automatically closed, and all open orders will be cancelled. If you decide to resume trading, you will have the opportunity to open additional positions, which will be calculated at the new rate and will have a different expiration date.

Selling according to the rules of the “Black Gold” strategy

Step #1 : Look at the location of the price relative to the Key Levels. The price should completely consolidate below the support level. Step No. 2. The Black Gold indicator line should decline, enter the zone of levels 70-30 and be above the RSI oscillator. Step No. 3. The RSI line should decline and be within the levels of 70-30. Step No. 4. We sell on a new opened candle and move the Stop Loss beyond the nearest support level. If the Stop Loss size exceeds 80 points, then it is advisable to skip the transaction. We also skip the signal if the size of the candle occupies most of the space between the levels of the Key Levels indicator. Step No. 5. We do not invest more than 3% of the deposit into one bet and always make sure that the Take Profit is at least 4 times higher than the Stop Loss.

Selling according to the rules of the “Black Gold” trading system: Stop Loss = 40 points, Take Profit = 160 points.

Video review of the “Black Gold” strategy.

Identification of oil grades by brokers

CFD on WTI oil is found under various symbols, the most common of which are WTI and CL. As for the Brent brand, various options are possible, but most often in dealing centers it comes in two subtypes - BRN (based on futures traded on ICE) and BZ (quotes of settlement contracts from the New York Exchange). In addition, some companies use their own tickers, for example, the USOIL and UKOIK codes are widely used, i.e. “American oil” and “British oil”, but their quotes are completely consistent with the data flow for the previously mentioned futures. In the specifications of various brokers you can find the following oil designations: QM, WBS, XBZ. Therefore, it is important to clarify such nuances with your broker. As for CFDs on gasoline and fuel oil, in this case everything is much simpler, since the futures contracts underlying them are traded only on NYMEX (New York Mercantile Exchange), and therefore they depend mainly on trends in the US economy. In DC terminals, similar instruments are found under the tickers HO (fuel oil) and RB (gasoline).

How can an individual trade oil and what is needed for this?

To start making money in this field, you need the following:

• select a trading instrument;
• find a broker;
• register and open an account;
• install software for online trading;
• find entry points;
• open a position;
• get profit.

Well, or suffer losses, whichever way it works.

Warning about Forex and binary options

Forex and binary options are a high-risk way to make money on oil.

The operating principle of both tools is simple:

1. Making money from raw materials on Forex assumes that instead of classic currency pairs, the ratio of the price of raw materials to another underlying asset is used.
2. Binary options have nothing to do with the oil market itself. The trader does not trade oil. He trades quotes. He simply monitors the movement of the cost of raw materials, makes his forecast, and then trades up or down. A kind of roulette in a casino. The basis can be any volatile asset. In fact, a binary option on raw materials, currency, goods - there is no difference. Therefore, binary options on oil are not an independent investment instrument and are not traded on state-licensed exchanges.

However, the apparent simplicity should not be misleading. Using such a highly volatile instrument to make money on binary options and Forex in general turns trading into a kind of lottery. Only real professionals with extensive trading experience and a deep understanding of how commodity markets work can count on a stable income here.

CFDs on oil

When trading CFDs, the trader does not trade the commodity itself. Most contracts are created for speculation. Their terms do not imply actual delivery of raw materials to the buyer.

The most traded CFDs are for Brent oil (ticker BRN) and WTI, also known as Light Sweet Crude Oil (ticker CL).

Binary options for oil

I repeat, binary options for oil have nothing to do with this commodity. Price quotes are traded, and trading itself is a variant of gambling in a casino.

Even Forex is a more honest instrument. At least everything is fair there, there is a foreign exchange market, there are currency pairs. And in the case of BO, the trader is misled by the name. He thinks that he is trading in raw materials, although in reality he receives absolutely nothing.

Buying shares of oil companies as a way to make money on oil

By trading shares of such giants as Exxon-Mobile (NYSE: XOM), British Petroleum, PetroChina, Chevron, ConocoPhilips, Marathon Oil, Royal Dutch Shell, Anadarko Petroleum Corporation and many others, the investor directly invests in the exploration of new fields, production and processing of raw materials .

I already said above that investing in the raw materials industry is a risky undertaking. But in the long term, investing in enterprises with such high capitalization and developed infrastructure can be profitable.

oil ETF

ETFs are a quality alternative to buying stocks. With these instruments, an investor acquires small stakes in multiple businesses without taking on too much risk or tying his earnings to the success of any one company.

The world's most famous black gold ETFs:

• United States Brent Oil (ticker: BNO);
• UNITED STATES OIL FUND LP UNITS (ticker: USO).

Oil futures on FORTS\America

Futures contracts are the most traded instrument on the New York Mercantile Exchange (NYMEX). This is one of the largest commodity markets in the world. But NYMEX is not the only way for investors to make money.

Russia also has its own futures and options exchange. This is a derivative instrument of the MICEX - FORTS. In this segment of the Russian stock market, commodity futures and options are traded. Its main difference from its American counterpart is the presence of an evening session. Trading is open until 23.50 Moscow time.

Futures for WTI oil (aka Light Sweet) are traded on the American Mercantile Exchange - NYMEX WTI Crude Oil - ticker CL; on FORTS - futures contracts for Brent oil (BR) and futures contracts for Light Sweet Crude Oil (CL).

Long term trend

WTI crude oil rose after World War I, peaking in the 20s, and trended sideways until the 1970s embargo led to a parabolic rally to $120. It reached its peak in the late 70s, followed by a tortuous decline until the 2000s, and more precisely, until the end of 1999, where it is worth noting a massive decline in global business activity. Ultimately, oil hit an all-time high of $144 in July 2008. By 2010, it had fallen to a wide trading range between $70 and $130, where it remained until mid-2014, followed by a decline to multi-year lows. At the moment (summer 2017), oil of this brand is trading around $45.

Now on the agenda today is the problem of overproduction, which, together with weak global demand, as well as the growth of shale oil production in the United States, has led to a decline in oil prices. And after sanctions against Iran were lifted, the price of Brent dropped to $27.72 in 2021, hitting a new 13-year low. And today, exporting countries regulate this problem by mutually reducing production quotas, which can only alleviate the symptoms, but does not lead to a solution to the current problem of overproduction.

And perhaps now only a consistent recovery in the global economy, industrial activity and consumer demand can provide the necessary climate for rising oil prices.

Purchasing according to the rules of the “Black Gold” strategy

Step #1 : Look at the location of the price relative to the Key Levels. The price should completely consolidate above the support level. Step No. 2. The Black Gold indicator line should increase, enter the zone of levels 70-30 and be under the RSI oscillator. Step No. 3. The RSI line should increase and be within the levels of 70-30. Step No. 4. Buy on a new opened candle and move the Stop Loss beyond the nearest support level. If the Stop Loss size exceeds 80 points, then it is advisable to skip the transaction. We also skip the signal if the size of the candle occupies most of the space between the levels of the Key Levels indicator. Step No. 5. We do not invest more than 3% of the deposit into one bet and always make sure that the Take Profit is at least 4 times higher than the Stop Loss. We can do more, but we don’t hunt for less profit.

Purchase according to the rules of the “Black Gold” trading system: Stop Loss = 35 points, Take Profit = 140 points.

What affects oil prices?

As mentioned earlier, changes in the price of oil can be influenced by a huge number of factors. Let's take a closer look at each of them.

Natural. In order to effectively and efficiently trade for as long as possible and take the right position in the market, you need to determine the level of oil deposits in a particular region and the possibility of their depletion in the near future. In this case, it is necessary to take into account the climate situation, for example, global warming may reduce the volume of purchased oil. This is statistical data that provides information about oil reserves and their possible depletion in the future. It is believed that global warming may lead to a decrease in oil reserves.

Geopolitical. The presence of agreements between certain countries, as well as associations of oil producers, can have a huge impact on changes in the cost of raw materials. The establishment of agreements or the emergence of conflicts between oil producing and consuming countries may affect the value of the commodity asset in the short term. The price of oil clearly reacts to the aggravation of geopolitical tensions, since large reserves of raw materials are concentrated in regions where local armed conflicts do not subside. There are a lot of examples, but the most recent of them is the conflict in Libya. Currently, a turbulent situation is developing in Iraq and Sudan, and indirect signs also point to possible disruptions in Nigerian supplies.

Amount of crude oil reserves. Information about the amount of oil reserves in a particular country periodically appears in the press and can radically change the current course. In the graph below you can see the change in the amount of oil reserves in the United States.

Such information should be used very carefully, since the fact of a decrease in inventories over the week does not guarantee that the demand for raw materials will increase, but recent years have shown that overstocking of storage facilities is always accompanied by a decrease in quotations of “black gold”, i.e. In the modern market, it is the buyer, not the seller, who dictates their terms.

News background. Fundamental background needs to be closely monitored: meetings of exporting countries, statements by individual energy industry officials, individual industrialists, as well as weekly reports on US reserves, the final summaries of which can be found here, and the number of drilling rigs in operation. Reports from OPEC and the US Department of Energy have a significant impact on the exchange rate of oil and the US dollar. In addition, you should pay very close attention to various reports, for example, on the number of drilling rigs in the USA:

It is also worth monitoring supply and demand in the markets, as well as monitoring trading volumes and inventories in the US.

Problems of processing and distribution. Both cost money, and the higher this price, the less profitable it is for the producer to extract oil and the more expensive, and therefore less competitive, the final product becomes.

Growth rates of world economies. The faster the economy of the USA, China and the whole world grows, the higher the demand for energy resources.

New technologies. The most striking example is the production of shale oil in the United States, which increases supply and puts pressure on prices. Contrary to rumors about the high cost of this oil, in many fields it is $40 and even $30.

The last group of factors includes various emergency situations . These include fires on platforms and factories, storms in the Gulf of Mexico and the North Sea, conflicts in the Middle East, sanctions on oil exports/imports, and others.

The main reasons for the fall in oil prices at the end of 2014 are not economic, but rather geopolitical preconditions. Leaders in Saudi Arabia, a country that holds a quarter of the world's oil reserves, decided that $120 a barrel was too much. Indeed, in the late 90s, oil cost only $12, but a few years later, oil prices suddenly jumped up to the displeasure of Saudi Arabia's leaders, who believe that a barrel of oil should cost much less. To bring down the price, they began to sell oil at a price below the market price, which led to a decline in its exchange rate. This played into the hands of the United States, since the country is one of the largest oil consumers in the world. Despite the active development of oil fields, the United States experiences a huge shortage of oil for the country's needs, so it is forced to buy “black gold” in other countries. The decline in oil exchange rate contributes to the purchase of US oil at the lowest prices, which cannot be said about Russia, whose economy directly depends on oil prices.

By the way, the powerful upward trend in the oil market, which was observed from 2000 to 2008, was due precisely to the real physical demand for energy from China. Economists even came up with a special name for this period - “super cycle”.

Below you can see a graph of the correlation between the price of Brent crude oil, the Dow Jones Industrial Average DOW 300 and the DAX stock index:

The graph is very interesting - it shows the correlation between oil prices and the state of the world economy. Moreover, it is clearly visible that since the end of 2014 the correlation has been severely disrupted. This means that at the moment the main driver for oil prices is not economics, but rather geopolitics. However, until 2014, changes in the global economy were almost always reflected in oil prices.

Pros and cons of working with oil on exchange platforms

Pros:

1. Diversification. Investments in the oil industry have always provided diversification in relation to the global economy as a whole. She works according to her own rules. For example, wars and crises that generally weaken the global economy can cause explosive growth in the oil trade. There are many other similar nuances.
2. Profit potential. Investments in oil have huge potential for growth. For example, if a company discovers several new fields and begins production there, its capitalization will increase significantly, as well as the trader’s earnings. In addition, one well can produce dividends for many decades.

Minuses:

1. Volatility. The success of investments in commodities is highly dependent on sharp price fluctuations, especially when investing in small-cap companies. Market giants withstand ebb tides without catastrophic consequences for themselves. Smaller companies fail in batches during financial crises, taking away investors' money.
2. Flexibility of management. When it comes to stocks, shares of oil companies, especially small ones, are not very actively traded. Therefore, in the event of personal force majeure, it will be difficult to quickly convert them into money.
3. Complexity. The oil industry is one of the most closed. Companies are not very willing to share internal information. Some data is available only to trusted partners. When such information comes out, it immediately changes quotes and priorities. Predicting all this is a difficult task.

The relationship between the US dollar and oil

When trading oil, the American dollar is used, all transactions are concluded in this currency. It's much more convenient and simpler. If multiple currencies were used to trade oil, traders and other exchange participants would need to perform many unnecessary steps. Today, oil can be regarded as an independent currency. And, as everyone knows, any modern national currency is equivalent to American dollars. Thus, the euro is related to the dollar, various national currencies are related to the American dollar, and this, in turn, is related to “black gold”. The price of oil determines the change in the exchange rate of the dollar, national currency and euro. Below is a chart of EURUSD, on which I have superimposed a chart of WTI oil:

Quite often, price movements in oil prices precede movements in major currency pairs.

Algorithm for buying oil on the exchange

It is unlikely that you need physical oil. To make money, it is better to pay attention to settlement instruments (futures or CFDs).

The process of purchasing them is quite simple:

1. Choosing a reliable broker. Pay attention to the fees charged and the availability of a license.
2. Register and download the trading terminal. We make a deposit.
3. Choosing a tool. Trading in raw materials is carried out on the Moscow Exchange, a number of foreign platforms and on the Forex market.
4. We complete the purchase transaction. This can be done on the Internet.

That's the whole algorithm. You are now the owner of oil futures. You can sell it at any time or wait until the expiration date (then settlements will be made automatically).

Volatility

Over the past 50 trading days, oil averaged absolute daily changes of +- 1-2%. This is significantly lower than last year. Looking at the moving average from 1983, from late 2014 to early 2021, as prices neared their lowest lows, daily volatility spikes averaged around +- 4%.

Thus, today volatility in the oil markets remains moderate, but can change significantly at any time - as geopolitical processes develop in the Middle East and South Korea, the dynamics of Chinese productivity, Eurosceptic sentiment, as well as the policy of the US Federal Reserve, which uncontrollably sucks in capital from emerging markets. Let us remind you once again that in historical terms, the average daily volatility of oil prices remains quite high.

History of oil

At the dawn of its appearance, the oil market was under the control of oil magnates and the companies they controlled. You've probably heard of John D. Rockefeller and his Standard Oil, or the more recent omnipotence of the OPEC oil cartel, as well as the powerful government-controlled oil companies - Statoil, Rosneft, Saudi Aramco. There are other equally important players in the oil market: Exxon Mobil, Chevron, Eni, BP, Shell, etc.

Several countries have built huge fortunes on black gold - Saudi Arabia, UAE, Russia, China, USA and Canada. There are still a number of countries where oil is produced and the income allows the countries to provide a decent standard of living for their citizens, but their development has been stopped for geopolitical reasons.

The presence of such powerful players does not mean that ordinary investors cannot make money from oil. Naturally, we will not be able to make money from the production and sale of crude oil, because we do not have access to wells and the necessary resources. An ordinary person can make money from oil by speculating on stock quotes and changes in oil prices. Below we will look at how to make money on oil on the Internet .

Basic trading strategies

If you are just starting to get used to Forex, I do not recommend starting to trade oil. Quotes of “black gold” are too dependent on many events, despite the fact that these events are not always related to the economy. In order to successfully trade oil and make a profit, you must understand market sentiment and understand the geopolitical situation in the world.

Oil trading is a unique and highly specialized field that requires exceptional skills in order to build a system for generating stable profits from this type of activity. This is why there are so few small speculators in this market.

The main indicators that are recommended to be used when trading oil are: Bollinger Bands, MACD, RSI, Stochastic and others that are well known to traders.

An excellent addition to indicators is the good old Price Action. Analyzing candlestick patterns, trend direction and strength, determining support and resistance levels, trend lines and chart patterns will significantly improve your trading. In addition, oil charts are distinguished by protracted, long-term trends with a small number of rollbacks, as well as a fairly small number of false takeaways.

The VSA method has also long established itself as an excellent approach for trading futures and commodities. As we have already said, one of the effective trading solutions for working with oil is futures trading. Here VSA opens up new opportunities for a trader in oil transactions. VSA also provides excellent capabilities for tracking leading trends in the market and for further forecasting. Thus, you will be able to see the real volumes of closed transactions with their link to price indicators.

Like all other goods, energy resources are subject to seasonal influences. Let us recall that seasonality is understood as a complex of phenomena and events leading to a predictable increase or decrease in the prices of the underlying asset during the time interval under study. Many traders use this seasonality factor in their strategies or even build their strategies based on it. The graph below shows the 15-year seasonality of Brent (red), 12-year (green), 10-year (blue), 9-year (orange) and 7-year (ochre).

Since oil is used to generate energy, demand for it increases significantly in winter, that is, when severe frosts occur in North America. It should be noted that in recent years this pattern has been making itself felt more and more often; meteorologists have even coined a special term - a polar vortex, which is used to describe a climatic phenomenon that brings severe frosts to the Great Lakes region. As a rule, such an impulse is observed in January and February and lasts at least until March. A similar picture is observed with fuel oil, since it is this fuel that is used to heat private houses, industrial buildings, and is also used to generate electricity (in winter the night is much longer than in summer - this factor also affects prices).

Then there is a decline until the summer months, when many people go on vacation and gasoline traditionally becomes more expensive. Along with this, oil prices also rise in price until September. In September, oil usually begins to fall in order to repeat its traditional rise in the new year and repeat this cycle again. In this case, the trend is explained by several reasons. Firstly, the demand for fuel is falling, since the peak of the driving season has passed, and the most difficult agricultural work has been completed. Secondly, despite the fact that in hot months the need for electricity for air conditioning increases, generating companies prefer to use gas rather than fuel oil, since it is relatively cheap in the United States and avoids problems with environmental monitoring. And thirdly, the volume of supply of oil and petroleum products is at a consistently high level, since in the summer it is easier to extract and transport raw materials, especially in the northern hemisphere (USA, Canada, North Sea, etc.). On the other hand, demand is less elastic, since it depends on the dynamics of the entire global economy, so companies and factories often work “to the warehouse”, i.e. pump energy into storage facilities.

For 15-year, 12-year, 10-year data this can be seen quite well, for 9-year and 7-year data it is worse - the greater influence of recent years is reflected. Notice how well the data was consistent up to 2010-2012. After the first ten years of the 21st century, which were perfect for seasonal strategies, the situation with oil has worsened and destabilized, new factors have begun to influence prices, and seasonal trading today is no longer such a powerful tool as it was before. However, certain seasonal trends remained to one degree or another, which can be easily seen in the presented graph. Such trends make it possible to identify the preferred direction for transactions, in other words, if a long-term pattern contradicts the technical picture, it is reasonable to abandon speculative transactions, but in the opposite case, i.e. If the technique coincides with seasonality, the likelihood of the signal being processed increases significantly.

As noted earlier, due to the impact on the mood of trading participants, specific factors, prices of different brands of oil or refined petroleum products may diverge significantly.

Such a difference between the prices of related assets is called an “intercommodity spread.” Here you should pay attention to the fact that this term has nothing to do with the usual difference between ASK and BID quotes, information about which can be found in the instrument specifications. Unfortunately, the capabilities of the MetaTrader4 terminal are very limited and do not contain many functions available in popular exchange platforms, so the spread between oil CFDs has to be built using auxiliary indicators:

In the chart above you can see prices for the two most popular brands - WTI and Brent. As can be seen from the graph, the given prices of instruments either diverge or converge. This value (the distance between prices) is usually called the spread and its graph can also be constructed:

Spreads are traded in the same way as with oscillators - trend indicators are applied to them, levels and trend lines are drawn, graphic patterns are looked for, and so on. At the same time, an increase in the chart indicates that the spread between the marks is diverging and if there is a sufficient divergence (ideally in the red zone), it is worth entering into a transaction (in my case, buy Brent and sell WTI), and if the spread is in the blue zone, close the transaction.

In addition, when analyzing the spread between two brands of oil (it turns out to be a synthetic Brent/WTI instrument), you can also be guided by seasonality. Moreover, seasonality in this case is more pronounced:

In the picture above, the actual spread is indicated by a thick black line. Thin colored – spread averaged over different number of years (from 15 to 3). Even the naked eye can see that quite a number of trends are repeated from year to year, which can also bring profit.

Here I would like to dwell in more detail on specific time frames, since the spread behaves differently on different time ranges. The chart above shows the marking on D1 - this is a classic of spread trading, since only at large intervals is an obvious range of fluctuations noticeable.

This is due to the fact that the discrepancy between oil CFDs depends mainly on the situation in the Middle East and Africa, in particular, when geopolitical uncertainty increases, the demand for Brent increases noticeably, since energy supplies to Europe may be disrupted, while in North America the market operates as normal, i.e. it turns out that the need for WTI remains at the same level.

If we once again focus our attention on the chart, we can see that the spread increased significantly just after the operation in Libya, when the supply of oil in the Mediterranean Sea decreased significantly. Further spikes were recorded during the escalation of the conflicts in Syria and Northern Iraq. Thus, if new hotbeds of tension emerge in Africa or the Middle East, it is advisable to buy CFDs on Brent oil and at the same time sell the same amount of WTI - such a tactic allows you to protect yourself from random speculative fluctuations to which single contracts are vulnerable, since sometimes the “foundation” turns out to be stronger geopolitics.

If we consider smaller timeframes, then in this case, transactions with a spread become more risky, since ranges are more often violated, and stable trends are formed on the synthetic indicator itself. However, even in such conditions, you can make money if you make decisions after analyzing important regional news. Here is a typical spread trade for short periods:

On May 25, 2021, the spread was in the upper zone, which indicated the possibility of a transaction. After GDP for the pound at 11:30 came out worse than expected and the market stopped storming, one could safely enter into a trade with the expectation that the spread would narrow from 2.82 cents. As we can see, the spread chart calmly continued to decline, the news background was calm, but on June 7, 2021 at 17:30, news on oil reserves in the United States was to be released, which will most likely serve as fuel for a new movement. And since we are already in profit and have no insider information about the upcoming news, we exit the trade when the spread reaches $1.92. As a result, we lost $0.2 on two spreads, but earned $0.7 or 70 points on this trade.

And since we’re talking about spread trading in energy resources, we can’t help but mention the discrepancy between WTI oil and fuel oil, since the latter in the United States is a fairly popular raw material for heating and energy generation, as a result of which its prices are more responsive to seasonal consumer demands.

Buying shares of oil companies

The oil sector includes a huge infrastructure. From large mining companies to small firms supplying large corporations with materials and equipment. All these companies are interconnected and their shares will rise or fall depending on the price of oil. The investor's profit in this case will be the difference in prices between purchase and sale.

For example, when the stock market fell in March 2021. Rosneft shares fell to 231.30 rubles. per piece, and by the end of August they already cost 392.75 rubles. If you invested 100,000 rubles in March. in shares of Rosneft (ROSN), then they would have earned 169,802 rubles, i.e. almost 70%.

This does not take into account the high dividends consistently paid by the company.

In addition to Rosneft, you can find a dozen more oil producing companies on the Russian market that stably pay dividends.

Major oil companies in the US and Europe:

• ExxonMobil (XOM)
• British Petroleum (BP),
• CHEVRON Corp (CVX),
• TOTAL (FP),
• Ovintiv inc (OVV),
• Murphy Oil (MUR),
• Apache Corp (APA),
• Apergy Corporation (APY), etc.

Read about how to buy them in the article: “How to buy European shares.” I recommend purchasing foreign shares through trusted foreign brokers:

• Roboforex Stock
• FxPro

Roboforex Stock - with minimal commissions for purchasing foreign shares

• 15 years in the stock market,
• $100 is the minimum deposit,
• 95% positive feedback,
• Access to American and European stock markets,
• Free stock trading training course,
• Dividend payment,
• Current trading ideas for investment,
• Free demo account with the ability to test robots.

FxPro is the best in CFD trading and execution speed

• Shares of leading companies in the USA, England, France and Germany,
• 1:25 — leverage for buying shares,
• Trading in the familiar MT4,
• 11 milliseconds - average execution speed ,
• Dividend payment,
• Withdrawal of funds without commissions
• You can make money when stocks fall.

For beginners, I recommend purchasing shares of oil companies with a leverage of 1:1. This will protect you from unnecessary losses if stock prices adjust against you (fall).

Anyone can also make money from falling shares by purchasing CFDs on shares. On the stock exchange this is called shorting shares. Read more about this method in the article “How to trade stocks.”

Confrontation of standards

In February 2011, WTI oil prices were at $85 per barrel. At that time, the price of Brent was $103 per barrel. The reason that most pointed to this gap was that Cushing had reached peak throughput due to an oversupply of oil within North America.

At the same time, Brent prices rose in response to civil unrest in Egypt and throughout the Middle East. Because WTI reserves at the Cushing price could not be easily transported to the Gulf Coast, WTI crude oil could not be arbitrated to bring those prices back to parity.

US offshore oil futures were closer to Brent than WTI. In June 2012, the Seaway pipeline, which carried oil from the Gulf Coast to Cushing, rerouted its flow to transport WTI-priced crude to the Gulf Coast, thereby aiming to reach Brent prices. However, the price difference persisted and was large enough that some oil producers in North Dakota trucked their product and shipped it by rail to the Gulf Coast and also to the East, where it reached the same price as European oil. markings.

However, Brent continued to cost $10-$20 more than WTI for 2 years (until Q2 2013). By July 2013, this difference had dropped to $4. By January 2014, the spread between the two had increased again to over $14, but by the end of 2014 it had decreased to $4.