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How Oil Trading Works

Date Modified: 26/07/2023

Oil is found in underground reserves around the world. Each region’s Oil is slightly different to another. To accommodate for these variations, there are multiple global marketplaces or ‘benchmarks’ that set the price for each crude (unrefined) Oil.

Key Oil Benchmarks

There are many benchmarks that are used as reference prices for crude oil. The main ones are Brent, WTI, and Dubai/ Oman.

  • Brent (EB)- Brent or Brent Crude covers roughly 66% of all Oil contracts. This oil is low in sulphur, classifying it as “light” or “sweet”, making it ideal for the production of Gasoline and Diesel. In addition, much of this is extracted from the North Sea from rigs that are already in the water, making it easy to ship.
  • Crude Oil (CL) - Also referred to as WTI, is very “sweet”, making it ideal for gasoline refining, and is extracted within the United States. It is mostly extracted from land wells, so it is more expensive to export.
  • Dubai / Oman - The main purchase point for Asia, this oil is “sour” meaning it is high in sulfur and a lower grade of crude Oil than what is found elsewhere. It is still highly sought after and a key benchmark.
Phone showing Oil trading in the Plus500 platform.

Illustrative prices.

How to Trade Oil CFDs

Oil CFDs offer traders an opportunity to not only trade on specific benchmarks, such as Brent & WTI, but also presents opportunities to trade on Oil’s most in-demand products, which themselves are globally-consumed commodities.

Some of them are:

  • Gasoline (RB)- Used to power cars and other combustion engines.
  • Low-sulfur Gasoil (G)- Diesel that is delivered to ports in the ARA. These ports include Amsterdam, Rotterdam, and Antwerp, including Flushing & Ghent.
  • Heating Oil (HO)- Priced in cents per gallon at the New York Harbor, Heating Oil is refined from crude oil and used to heat homes.

Top Oil CFD Trading Features

Going long or short is one of the more familiar features to CFD traders who want to take advantage of market volatility, without needing to purchase the underlying Oil asset. What’s more, positions can be opened or closed 23 hours a day, excluding weekends, without needing to worry about the maintenance or management of a live contract.

While futures typically expire at the end of the month, Plus500 offers its traders an automatic rollover service so they can keep contracts open without worrying about expiration dates. With rollover, contracts remain open and the value is transferred to new contracts of the same value at the time of rolling over. The Economic Calendar is a powerful tool to stay informed of upcoming OPEC meetings, US petroleum reports, and other planned events that may influence this commodity.

Going long or short on a position comes with the potential for profit as well as loss. In order to mitigate risk, traders should consider taking advantage of ‘Close at profit’, ‘Close at loss’, and other key features.

The Largest Oil Producers

Oil is produced in regions around the globe, offering traders the opportunity to trade on not only the commodity but its producers as well.

Some of the largest producers as of October 2020 are:

  • Exxon Mobil Corp. (XOM)- Founded in 1870 as Standard Oil, this gas & oil producer is valued at approximately $140 billion.
  • Royal Dutch Shell (RDSA-L)- A British- Dutch Oil company that is valued at approximately $51 billion.
  • China Petroleum & Chemicals (SNP)- Based in China and traded on the New York Stock Exchange, this producer’s market capitalization is valued at approximately $10 billion.
  • BP (BP-L)- A British Oil & Gas company valued at approximately $54 billion.
  • Total SE (FP.PA)- Headquartered and traded in Paris, France, this leading Oil European OIl company is valued at approximately $87 billion.

Many of these companies* have other revenue streams which include various petroleum products and Natural Gas.

While Oil and its products have been increasingly in demand over the past few decades, the day to day trading of these instruments are subject to volatility. In addition, the price of these commodities do not always reflect the level of consumption or inflation. This means that despite an increase in consumer consumption, it is possible that the price per barrel or gallon will decrease. At the same time, a decrease in consumption may be paired with an increase in price. This is a result of Oil price’s many influences beyond consumer demand.

*Instrument availability varies by operator.

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Crude oil, also known as North American crude oil, is the underlying instrument for trading oil extracted from US land and coastal waters. Its biggest counterpart is Brent Oil – a benchmark for North Sea crude oil.

Oil CFD is a financial derivative which follows price changes in Crude oil futures, the world’s largest and most traded commodity. Oil futures CFDs are traded on Plus500’s trading app 23 hours a day, 5 days a week, based on price quotes provided by the New York Mercantile Exchange – a leading commodity futures market which is part of the Chicago Mercantile Exchange (CME).

The factors affecting crude oil prices are generally divided into three groups:

  • Macroeconomic factors
    • Supply: includes raw oil resources that can be physically extracted from land or sea, and oil reserves which consist of a daily, weekly or monthly amount of oil barrels that can be produced at a price that is financially beneficial.
    • Demand: reliance on oil supplies and by-products for maintaining growth in global economy, and the adoption of alternative energy sources such as wind, hydro-electric and solar energy.
  • Relations between major players in oil markets
    • Production agreements between leading producers of petroleum concerning how much oil to produce.
    • Political or economic sanctions imposed on (or lifted from) oil-exporting countries such as Iran, Venezuela, Qatar or Russia can result in fluctuations in global oil prices, along with the prices of other commodities.
  • Speculations and trading sentiment
    • Trading oil through futures contracts is considered a common form of trading. Due to the large number of market speculators – central banks, investment banks, financial institutions, brokerage firms, individual investors, day traders, etc. – this activity has the ability to strengthen or reverse the momentum in oil prices.

Explore more factors that can affect Oil prices in our "What Influences the Price of Oil" article.

Benefits of using the Plus500 app to trade oil futures CFDs include:

  • Competitive spreads with zero trading commissions.
  • Access to high levels of liquidity and volatility due to the nature and popularity of oil.
  • The oil market is open for trading 23 hours a day, 5 days a week.
  • Free-of-charge automatic rollover from old to new contracts.
  • You can trade in any direction – Selling is just as accessible as Buying.
  • Our customer support team is here for you 24/7.

There are a number of different types of crude oil, with different pricing characteristics. The two leading international crude oil prices are:

NYMEX WTI Crude Oil – determined according to a benchmark in oil futures contracts as traded on CME’s New York Mercantile Exchange.

Brent Oil – determined according to an international benchmark used primarily in Europe, and traded on the Intercontinental Exchange (ICE).

Another important oil pricing benchmark is the OPEC Basket which includes an aggregate for oil produced and exported by the countries of the Organization of Petroleum Exporting Countries, with Saudi Arabia being its chief member.

Follow these 7 steps in order to trade oil CFDs with Plus500:

  1. If you don’t already have a Plus500 trading account, click here.
  2. Register your details and deposit funds via bank transfer, debit card and more.
  3. Navigate to oil under ‘Commodities’ or search for ‘Oil’ in the search bar.
  4. Check for upcoming economic events that have an effect on oil prices, such as the US weekly petroleum status report and OPEC meetings.
  5. Manage your risk and profit by adding stop orders such as 'Close at Loss' and 'Close at Profit'.
  6. Open a Buy or Sell position according to the direction you expect oil to move.
  7. When you want to close out your position, click on the ‘Close’ button.

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