Oil is one of the most actively traded commodities in this region. It is an important driving force of the economy. Globally, it's not only used as petroleum for travel and transportation purposes, but also as a component in producing consumer goods.
The increased volatility throughout recent years where supply and demand is constantly changing, so is the price of oil. There are various ways of investing in oil via cash or future contract, equities or ETF's. Oil demand is recovering but at a very slow pace amid the COVID-19 pandemic and economic slowdown.
Ways to Trade Oil
Stocks: Purchasing stocks of oil companies is one of the way to get exposure to oil trading.
Futures: Oil futures are an agreement to buy or sell an exact amount of oil for a set price at a set date in the future. This is the most popular method of trading oil. However, trading on oil futures can be a risky process as futures prices will also fluctuate depending on the price of oil, which is impacted by many external factors.
ETF’s: Exchange-traded funds are a type of investment fund that can grant traders exposure to the oil market through holding a collection of underlying assets, which in this case would be shares in oil companies. Crude oil ETFs are bought and sold in the same way as many other shares in the stock market. When the price of oil fluctuates, this also has an influence on the share price of oil companies and subsequently, the value of the ETF.
5 Good Reasons to Trade in Oil
Oil prices are more volatile: Supply and Demand clearly plays a big factor in oil prices. If oil market supply is constricted the price rise and if global economic growth slow, demand falls, and price will drop.
Diversify your portfolio with commodities trading: Commodities like oil are useful in countering price movements in a traditional equities’ portfolio.
Inflation hedge: Oil trading is used to reduce or eliminate a company’s exposure to fluctuating oil prices.
Liquidity: Oil futures are one of the most liquid investments because of the high volume that is traded every day.
Irreplaceable resource: Oil is an irreplaceable resource. Most of the crude oil reserves in the world are in regions that have been prone to economic and political upheavals. Weather also plays a significant role in the supply of crude oil.
Top 6 Popular Oil Trading Stocks Companies
Apart from crude oil trading another better way is trading oil stocks companies involved in oil extraction, production, distribution and refinery.
1
Pioneer Natural Resources Co
2
ConocoPhillips
3
Baker Hughes Co
4
Schlumberger Ltd
5
Chevron Corp
6
Exxon Mobil Corp
Oil Companies Performance in 2021 till date
| Company | CMP (in $) | Dividend Yield (in %) | 52 Week Low (in $) | 52 Week High (in $) | Dividend Per Share (in $) |
|---|---|---|---|---|---|
| Pioneer Natural Resources Co | 130.0 | 1.69% | 48.7 | 159.0 | 2.20 |
| ConocoPhillips | 43.2 | 3.89% | 20.9 | 67.1 | 1.68 |
| Baker Hughes Co | 22.6 | 3.19% | 9.1 | 26.0 | 0.72 |
| Schlumberger Ltd | 24.2 | 2.07% | 11.9 | 41.1 | 0.50 |
| Chevron Corp | 92.0 | 5.61% | 51.7 | 125.3 | 5.16 |
| Exxon Mobil Corp | 48.1 | 7.23% | 30.1 | 71.4 | 3.48 |
| EOG Resources Inc | 55.0 | 2.73% | 27.0 | 89.5 | 1.50 |
| Suncor Energy Inc | 18.1 | 8.38% | 9.6 | 34.6 | 1.52 |
|
Dated: 22 Jan 2021 |
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The Main Benchmarks of Crude Oil Trading
There are dozens of different oil benchmarks, with each one representing crude oil from a part of the globe. However, the price of most of them are pegged to one of the following three primary benchmarks:
Brent Crude: Generally, two -thirds crude oil traded around the world reference Brent Crude, making it the most widely used marker of all. These days, “Brent” refers to oil from four different fields in the North Sea: Brent, Forties, Oseberg, and Ekofisk. Crude oil from this region is light and sweet, making them ideal for the refining of diesel fuel, gasoline, and other high-demand products. As the supply is waterborne, it’s easy to transport to distant locations. Crude oil trading is possible on the platform in cash and futures contracts.
West Texas Intermediate (WTI): WTI refers to oil extracted from wells in the U.S. and sent via pipeline to Cushing, Oklahoma. The fact that supplies to oil market are land-locked is one of the drawbacks to West Texas crude as it’s relatively expensive to ship to certain parts of the globe. The product itself is very light and very sweet, making it ideal for gasoline refining. WTI continues to be the main benchmark for oil consumed in the United States.
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Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you
fully understand the risks involved
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