Crude oil trading offers excellent opportunities to pr🐬ofit in nearly all market conditions due to its unique standing within the world’s economic and political systems. Energy sector volatility can produce consistent returns for short-term swing trades and long-term timing strategies.

Market participants often fail to take full advantage of 澳洲幸运5官方开奖结果体彩网:crude oil fluctuations, either because they haven't learned the unique characteristics of these markets or because 🌳they're unaware of the hidden pitfalls that can eat into earnings. In addition, not all🍎 energy-focused financial instruments are created equally, with a subset of these securities more likely to produce positive results. 

Here are five steps needed t🌄o make a♛ consistent profit in the markets.

1. Learn What Moves Crude Oil

Crude oil moves through perceptions of supply and demand, affected by worldwide output as w🦹ell as global economic prosperity. Oversupply and shrinking demand encourage traders to sell crude oil markets whileꦜ rising demand and declining or flat production encourage traders to bid crude oil higher.

Tight convergence between positive elements can produce powerful uptrends, like the surge of crude oil to $145.31 per barrel in July 2008, while tight 澳洲幸运5官方开奖结果体彩网:convergence between negative elements can create equally powerful downtrends, like the August 2015 collapse to $38.22 per barrel.

澳洲幸运5官方开奖结果体彩网:Price action tends to build narrow trading ranges when crude oil reacts to mixed conditions, with sideways action often persisting🉐 for years at a time.

2. Understand the Crowd

Professional traders and hedgers dominate the energy 澳洲幸运5官方开奖结果体彩网:futures markets, with industry players taking positions to offset physical exposure while hedge funds speculate on long- and short-term direction. 澳洲幸运5官方开奖结果体彩网:Retail traders and investors exert less influence here than in more emotional markets, like precious met𒉰als or high beta growth stocks.

Retail's influence rises when crude oil trends sharply, attracting capital from small players who are drawn into these markets by front-page headlines and table-pounding talking heads.

The subsequent waves of greed and fear can intensify underlying trend momentum, contributing 🔥to historic climaxes and collapses that print exceptionally high volumes.

3. Choose Between Brent and WTI Crude Oil

Crude oil trades through two primary markets, West Texas Intermediate Crude an♊d Brent Crude. WTI originates in the U.S. Permian Basin and other local sources while Brent comes from more than a dozen fields in the North Atlantic. These varieties contain different sulಌfur content and API gravity, with lower levels commonly called light sweet crude oil. 

Brent is a better indicator of worldwide pricing, being more heavily traded in the world futures markets.

Pricing between these grades stayed within a narrow band for years, but that came to an end in 2010 when the two markets diverged sharply due to a rapidly changing supply versus demand environment.

The rise of U.S. oil production, driven by shale and fracking technology, increased WTI output a🌞t the same time Brent drilling underwent a rapid decrease.

U.S. law dating back to the Arab oil embargo in the 1970s aggravated this division, prohibiting local oil companies from selling their inventory in overseas markets. This ban was removed in 2015.

Many of CME Group's New York Mercantile Exchange (NYMEX) futures contracts track the WTI benchmark, with the "CL" ticker attracting significant daily volume.

The majority of futures traders can focus exclusively on this contract and its many derivatives. Exchange-traded funds (ETFs) and exchange-traded notes (ETNs) offer equity access to crude oil, but their mathematical construction generates significant limitations due to contango and 澳洲幸运5官方开奖结果体彩网:backwardation.

4. Read the Long-Term Chart

WTI crude oil rose after World War II, peaking in the upper $20s and entering a narrow band until the embargo in the 1970s triggered a parabolic𝔉 rally to almost $70. It peaked late in the decade and began a torturous decline, dropping into the $20s ahead of the new milꦚlennium.

Crude oil entered a new and powerful uptrend in 1999, rising to an all-time high at $201.04 in June 2008. It then dropped into a massive trading range between that level and the upper $50s, settling around $56 at the end of 2018. As of August 2024, it was trading at about $71.

5. Pick Your Venue

The NYMEX WTI Light Sweet Crude Oil futures contract (CL) trades in excess of 10 million contracts per month, offering superb liquidity. However, it has a relatively high risk due to the 1,000-barrel contract unit and the .01 per barrel minimum price fluctuation.

There are dozens of other energy-based products offered through NYMEX, with the vast majority attracting professional sp🃏eculators but few private traders or investors.

The U.S. Oil Fund offers the most popular way to play crude oil through equities, posting an average daily volume of about 2 million shares. This security tracks WTI futures but is vulnerable to contango, due to discrepancies between 澳洲幸运5官方开奖结果体彩网:front-month and longer-dated contracts that reduce the size of price extensions.

Oil companies and sector funds offer diverse industry exposure, with production, exploration, and oil service operations presenting different 𓃲trends and opportunities.

While the majority of companies track general crude oil trends, they can diverge sharply for long perio♌ds. These counter-swings often occur when equity markets are trending sharply, with rallies or selloffs triggering cross-market correlation that promotes lockstep behavior between diverse sectors.

Some of the largest U.S. oil company funds are:

• SPDR Energy Select Sector Fund (XLE)
• SPDR S&P Oil & Gas Exploration and Production ETF (XOP)
• VanEck Vectors Oil Services ETF (OIH)
• iShares U.S. Energy ETF (IYE)
• Vanguard Energy ETF (VDE)

Reserve currencies offer an excellent way to take long-term crude oil exposure, with the economies of many natio💝ns leveraged closely to their energy resources.

U.S. dollar crosses with Colombian and Mexican pesos, under tickers USD/COP and USD/MXN, have been tracking crude oil for years, offering specula🎃tors highly liquid and easily scaled access to uptrends and downtrends. 🎀Bearish crude oil positions require buying these crosses while bullish positions require selling them short.

The Bottom Line

Trading in crude oil and energy markets requires exceptional skill sets to build consistent profits. Market players looking to trade crude oil futures and its numerous derivatives need to learn what moves the commodity, the nature of the prevailing crowd, the ꦗlong-term price history, and physical variations between different grades.