Reasons for Trading Oil Can Be Very Beneficial for You

Thursday, January 17, 2019

In 1999, the price of Crude Oil on the world market was only around USD13.50 per barrel. Even some media are busy displaying predictions that Oil prices can reach USD 5 per barrel, consumers will enjoy cheap prices and a better future. However, after that, Oil prices actually took off to more than USD100 per barrel. This very high price fluctuation is one of the important reasons for trading Oil.

Why Trading Oil

Crude Oil is one of the most traded and most sought-after commodities in the world besides Gold. Many parties have an interest in Oil as the world's main energy source, but the supply is very scarce. Therefore, even though the price movements do not always go up, the volatility they present always opens attractive trading opportunities.

In general, the profit prospects of trading Oil are very large due to the following factors:

1. Peak Oil Theory

Changes in world oil prices are accompanied by a popular theory called the Peak Oil theory. This theory broadly states that world Oil production will continue to increase so that it reaches a peak, then it will decrease according to the speed of production increase in the previous.

The problem is that Oil production represents the supply side in the price balance, so that the decline and increase will have a large impact. Therefore, until now, market players always overreact when there are indications of a decline in production in major oil producing countries, namely OPEC, the United States, Russia and Canada.

2. Geopolitical Conditions

The instability of political conditions in the Middle East such as Libya, Egypt, Algeria, Yemen, Iran, contributed to the weakening and soaring prices of world Oil today. Middle Eastern countries are known as suppliers of oil in the world, so the instability in the area is feared to result in a scarcity of oil supply in the world market.

For traders, this instability actually shows the amount of profit opportunities that can be obtained. Instead of assets whose prices are flat because there are not many changes, it is clear that the opportunity for Oil trading is greater.

3. Market Speculation

As a commodity in the futures market, Oil is also the target of traders and investors. On the futures exchange, there are various types of Oil that can be traded, but the most crowded are the types of Brent and West Texas Intermediate (WTI). Brent trading oil is common on the London exchange, while WTI type oil trading is more popular on Wall Street (United States).

The rush of trading in the futures market has also fueled market speculation around the Oil market. As a result, the effects of the news related to Oil could increase several fold.

4. Industrialization

China and India are countries that the economy can progress rapidly. Both countries really need oil as fuel for the passage of industrialization in their country. In fact, China has defeated the United States as the largest consuming country of energy resources in the world. The international energy agency stated that China consumed 2.5 trillion tons of Oil in 2010.

This means that fossil energy commodities will always be relevant as long as there are no alternative energy sources available. Oil traders do not need to worry that sudden supply and demand will be quiet.

5. Not Available Oil Substitute Energy

Until now, Crude Oil is still the main energy source used in all parts of the world. Although some countries have developed several alternative energy sources, they have not been able to show significant results.

Actually, nuclear is the most potential energy source to replace Oil. However, the issue of ecosystems is still a serious obstacle, especially after the tragedy of the Chernobyl and Fukushima reactors. Solar energy is currently being developed, but its use is less flexible for motorized vehicles.

Future oil crisis cannot be avoided, and countries in the world compete with each other to continue to look for alternative energy. The ingenuity of human reason cannot be underestimated. When the time comes, with all the incentives provided to create new energy sources, I believe we will not go back to the times of human transportation using horses, but instead utilize new energy sources that are more environmentally friendly.

Meanwhile, Crude Oil will always be in the spotlight. For traders and investors like us, that means unlimited oil trading opportunities. Simply learn the fundamental analysis and technical analysis underlying the price, then make a profit from the difference in purchase price and selling price.

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