Like many other forms of commodity trading, WTI crude oil trading involves the buying and selling of oil and oil-linked assets. By speculating on oil price swings, you can earn a profit – whether the market is rising or falling.
It's one of the most traded commodities across the globe, and you can trade WTI crude oil right here with us. To delve into what crude oil is, how it can be traded, and why it's so popular, read our expert guide.
You might have heard people mention WTI crude oil. If so, you might be wondering what it is and why you should invest in it.
WTI crude oil is short for West Texas Intermediate (WTI) oil. Coming from the United States (as the name suggests!), WTI crude oil is what's known as a 'sweet' and 'light' oil. This means that it has a low density and sulphur content and can be used to convert gasoline and diesel to fuel.
WTI crude oil is one of the three main crude oils on the market alongside Brent crude oil and Dubai crude oil.
Due to the popularity of oil drilling and fracking, WTI crude oil has dropped in price compared to Brent crude oil. Before the advancements in oil drilling and fracking, Brent crude oil was far cheaper than WTI oil. Despite price movements, they both remain high-quality, premium oils.
The oil commodity market is one of the most heavily traded as traders can capitalise on the price fluctuations that occur amid every global event. This volatility makes both oil markets highly profitable. However, another key difference between WTI crude oil and Brent crude oil is their tolerance to geopolitical events. For example, during times of crisis and political uncertainty, Brent crude oil prices skyrocket. On the other hand, WTI crude oil is less affected as it comes from a landlocked area in the US.
WTI crude oil is sourced from oil fields in Texas, Louisiana and North Dakota. This makes it the benchmark oil for North America as it is sourced from the Permian Basin.
Once extracted, WTI crude oil travels to the Gulf of Mexico, where it is refined. Once this process is complete, the physical exchange and/or delivery takes place in Cushing, Oklahoma.
WTI crude oil is normally used for gasoline refining. Unlike Brent oil, which is used for diesel, WTI crude oil can refine petrol or gasoline.
You can trade WTI crude oil almost 24 hours per day, five days per week. However, it's important to note that WTI crude oil trading has an hour break at 4pm CT. The trading hours are as follows:
Physical exchanges and price settlements for WTI oil are executed in Cushing, Oklahoma. WTI oil is usually traded with spot prices, futures or options. Please note you cannot trade spot, futures or options with Tradu; their inclusion here is for informational purposes only.
WTI oil is traded on the New York Mercantile Exchange (NYMEX) in the US and is priced in dollars per barrel.
There are many different ways to trade WTI crude oil. The best method for you will depend on your preference, experience and risk appetite. Here are some of the most popular ways to start WTI crude oil trading.
The first way to trade WTI oil is by using spot prices. Spot prices refer to the buying or selling of oil immediately, rather than on a set date in the future.
Unlike futures, which speculate on how much the oil will be worth in the future (hence the name), spot prices look at how much the oil is worth at this moment in time.
Futures are contracts into which you enter where you agree to sell a certain volume of oil, on a set date, for a pre-agreed price.
Given that the oil market is so volatile, with huge price swings occurring daily, futures are a common way to buy and sell oil. Unlike spot prices, oil futures allow you to profit from both rising and falling prices.
'Shorting' WTI crude oil means profiting from a drop in crude oil prices. To short crude oil, you must take up a short position using futures.
The way in which you make a profit is simple: if you short WTI crude oil, if the value of the oil falls on the exchange date, you'll make money – even though the price of WTI crude oil itself is on the downturn.
Much like futures, options are an agreement to buy or sell a certain amount of oil on a set date. However, unlike futures (where both parties are obliged to carry out the trade), options give you the option to back out of trading, should you wish.
Options give you the right to buy or sell a certain amount of oil but you're not compelled to do so. This is why they can be seen as a less risky way to trade.
There are two types of option:
Contracts for difference (CFDs) can be used to speculate on the market price of WTI crude oil. When you trade using CFDs, you never own the underlying asset. Instead, you use the price movements to make a profit.
With CFDs, you decide whether you think that the price will increase or decrease. If you think that the price will fall, you sell (otherwise known as 'going short'); if you anticipate a rise in value, you buy ('going long').
If the price of WTI oil moves in your favour (i.e. the market movement matches your prediction), you'll profit. If it goes the other way, you'll make a loss. CFDs also allow you to use leverage. This means that you can open a position with a small deposit, rather than buying the trade value.
Although you can increase your profits, if the market doesn't move in your favour, you'll heighten any losses. This makes CFDs a risky way to trade WTI crude oil.
Another way to trade WTI crude oil is by investing in oil companies instead. When you buy shares, should the companies make a profit (as we have seen in recent years), you'll make money through dividends.
You can also trade shares via CFDs. This means that you can make money whether the price of the share increases or decreases.
As is the case with all types of commodity trading, the price is largely impacted by supply and demand.
WTI oil is a fossil fuel, which means that there is only a finite amount available, even though the world’s proven oil reserves total has increased from 1,735 billion bbl in 2021 to 17,57 in 2022.
This means that, inevitably, a point will be reached at which the demand for WTI crude oil far outweighs the supply – but some other factors also affect how much WTI oil is worth. Here are some of them:
Like any sort of commodity trading, there are pros and cons to WTI crude oil trading. Whether you should invest depends on your appetite for risk and experience. But some of the benefits include:
However, it's worth noting that commodity trading is extremely volatile and can be risky. That's not to mention that WTI oil reserves will eventually run dry – so investing must be considered in context of the risk/reward ratio.
Looking to take the plunge and start trading? You can do so in just a few simple steps with Tradu.
Keen to learn more about commodity trading? Not sure whether to take the plunge and start trading WTI crude oil? Check out our helpful commodity guides for more trading ideas.
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