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How to make money on oil (Brent, Crude, WTI) - examples and analysis

As soon as oil prices reach record levels, it seems that not a day goes by without complaints from two or three people about the cost of gasoline or heating oil. Indeed, rising prices are a source of concern - and sometimes anger - for everyone. Well, for almost everyone: while others are suffering from oil price spikes, some people have learned how to make money from it, and not only CEOs of oil companies benefit from this. Here we will tell you how to get your share during the oil boom.

How to make money on oil to an individual and what is needed for this

You may not like to read the articles to the end, but take a couple of minutes for important information on how to trade oil and how much they earn on oil (Brent, Crude Oil, WTI) ordinary traders.

On the exchanges, oil is traded in various forms, but mostly these are futures contracts and options (fixed-term contracts that have a specific deadline, for example, in a month) Futures can also be deliverable, that is, when you purchase it, at the time the futures expire real barrels of oil will be brought to your house. But this is available only for millions of contracts and oil companies, in other cases only settlement futures work, which work only with price and money, and not with real oil supplies. The rest of the instruments on the stock exchange work on the same principle.

Consider all the ways how you can make money on oil through the Internet to an individual - any ordinary person.

There are several ways to profit from black gold:

  1. By trading futures,
  2. Option purchases,
  3. Conclusion of contracts for difference,
  4. Oil company stock purchases,
  5. Participation in mutual investment funds.

Consider each of the options for working in the oil market in more detail.

Maximum oil trading volumes are traded on the New York Mercantile Exchange (New York Mercantile Exchange, NYMEX) and London Stock Exchange ICE (Intercontinental exchange) Naturally, trading in this raw material is also conducted at many other sites, however, much lower volumes are traded on them.

The generally accepted exchange unit for the volume of an oil contract is 1,000 barrels per contract.

One oil barrel is 42 gallons, or 158.99 liters. This unit of measurement was officially adopted back in 1872 by the Association of American Petroleum Producers.

The OTC market does not imply such restrictions on volumes, so trading is available to almost anyone who wants it, even with relatively little capital. However, working outside the exchange, it is worth considering that such markets do not have the same strict regulation.

To imagine what money you need to have for working in the real oil market, we will make a simple calculation. For example, the price of oil $80, respectively, to buy only one contract you will need $80 000. But if you do not buy oil itself, but only trade it at a price, then you can enter into a deal with $5. Of course, with such amounts, everyone can make money on oil on the Internet.

Oil Difference Contracts

Contract for difference (Contract For Difference, CFD) - this is an agreement between the buyer and seller on the transfer of the monetary difference between the price of the asset at the time of conclusion of the contract / opening of the transaction and the corresponding value at the end of the contract / closing of the transaction. Simply put, it works the same way as the Forex market - bought cheaper and sold at more expensive. Even the program for transactions is the same. By the way, the foreign exchange market itself offers oil trading.

When trading CFDs, the asset itself is not acquired: trading is based solely on speculative profit. Unlike futures, it is possible to work with contracts for difference by shredded lots with a volume of at least 0.01 lots. Given the leverage of the broker, you can enter the transaction with a few dollars.

Thus, CFDs are a convenient tool for making money on oil, which is ideal for a novice trader.

Binary options for oil

Earnings on oil on the binary options exchange is well suited for investors aimed at maximum profit, and now you will understand why.

Binary option (Binary Option, Asset-or-Nothing Option) Is a financial instrument that, when the specified condition is met at the specified time, provides the investor with a fixed amount of income, and if the conditions are not met, it does not bring profit. Payment of fixed profit is carried out regardless of the degree of price deviation (lower / higher) from the agreed level.

The essence of binary options trading is to predict the upcoming movement of the oil rate in a certain period of time.

For example, if you chose an oil option for a period of 10 minutes, you need to indicate whether the price of oil will rise or fall in 10 minutes. If your option condition is fulfilled, then you will receive a fixed profit (from 60%!), While it does not matter how much the price rises or falls, even by 1 cent - it is only important that it matches your condition ABOVE or BELOW.

See below a real example of how to trade oil.

We opened this page and selected the asset we needed:

Indicated the closing time of the option on 13:35 (after 8 minutes):

Now we need to indicate our forecast whether the price of oil will be higher or lower in 8 minutes. We predicted a drop in quotes, so we indicated the condition WAY DOWN:

If after 8 minutes the oil quotation is lower, according to our condition DOWN, then we will profit.

Time passed and the transaction was automatically closed at the time indicated by us:

The graph shows how the price dropped. The condition of our option was fulfilled and we made a profit:

This example shows how much traders earn on oil in one transaction, in 8 minutes. It is also noteworthy that here you can earn not only on growth, but also on falling prices.

For trading oil options, we recommend the famous broker FiNMAX, as it offers the best conditions for transactions, a huge selection of assets, constantly holds free webinars during which it is already possible to earn money with the host.

Buying stocks of oil companies as a way to make money on oil

Only a few corporations are represented on the western stock market, providing crude oil to most of the planet. As a rule, these are very expensive stocks that are not subject to high volatility, which are the lowest risk investment in the oil market. But at the same time they provide a fairly low yield.

For investors interested in obtaining higher profits, companies engaged in the production and supply of special equipment for oil production and the development of new fields may be of interest. It is also worth paying attention to the shares of companies that transport and store black gold, for example Constellation Energy, Frontline Ltd. or Nordic American Tankers. Investing in these enterprises is more risky, but at the same time you can count on large dividends, and the value of these securities is directly related to the price of oil.

To invest directly in oil and gas companies, you must have large capital. Naturally, it is possible to purchase shares individually, then transaction costs will “eat up” a significant part of the investor’s income and make working with them inappropriate.

To enter the stock market, a citizen of the Russian Federation must do the following:

  • Choose a broker
  • Sign up
  • Top up your personal account
  • Make an application for the purchase of shares using the trading terminal (program on PC).

Best stock brokers

  • Finmaxfx
  • Libertex
  • eToro

FinmaxFX broker offers a huge number of stocks. Most brokers seek to give access only to the most popular NYSE or NASDAQ, but FinmaxFX has a huge number of European and Asian stocks, a large number of indexes, and of course, securities from US exchanges, including domestic companies. The broker provides a professional trading platform and the best conditions.

Adjustable FSA and in Russia TSROFR. Recommended Initial Deposit $250-300.

Libertex platform is owned by a broker who has been working for more than 20 years. The platform itself is under the control of European regulators Cysec and Mifid. Here you will find a huge number of stocks, stock indexes, ETF funds and more.

The broker offers a huge asset base, an academy (training programs), constantly holds webinars, provides analytics and has a very convenient trading platform to which a large number of indicators are connected. The platform itself has a block with the latest news and forecasts in Russian. Minimum deposit $200.

The eToro broker offers a huge number of stocks and ETFs in the US, European and Asian markets. More than 12 years of experience, regulation of CySEC, investment funds in the stock market, ready-made portfolios and other investment opportunities. Professional broker for buying and making money on securities. Minimum deposit $500.

Almost all oil and gas companies are blue chips, which are characterized by high stability even in times of crisis, as well as good market liquidity of shares. Most of these enterprises are state structures, therefore they have the greatest protection against bankruptcy and other problems. Non-state oil companies also have high financial stability. For example, the Russian Lukoil is the second taxpayer in the country after Gazprom, and Surgutneftegas owns the largest reserve of available funds in the world among oil companies $ 30 billion.

Mutual Investment Funds

Mutual Funds offer to invest in a broadly diversified portfolio of stocks of oil companies. There are various oil mutual funds and ETF funds that provide access to all who wish to earn money on the extraction, processing and transportation of oil.

Mutual Funds are distinguished by long-term investment and lower income. And even in this case, it is better to understand a good moment for investing. But how to make a forecast for oil and determine its future?

What affects the oil market and how to make forecasts

How to analyze oil?

Oil is produced in many regions, so it always has differences in quality and in properties. Accordingly, the assumption that different varieties will have a difference in prices is quite reasonable. It should be noted here that oil traded on the exchange is raw material from several fields. In total, there are more than 200 grades of crude oil.

Varieties on the market are a kind of reference, that is, they represent the best samples. This is due to the fact that on the stock exchanges it is simply impossible to imagine the whole variety of varieties. For the EU and the Asian region, the brand is considered the standard Brent crude oil (Brent), and for both Americas it's a variety West Texas Intermediate (WTI), also sometimes called Texas Light Sweet. These varieties have the highest market liquidity. It is generally accepted that the exchange value of black gold is the most objective.

According to many proponents of technical analysis, oil is notable for making a quotation forecast. However, adherents of fundamental analysis believe that this asset is a purely fundamental tool, respectively, a purely technical approach will always have serious errors at some points. In addition, prices are sometimes manageable rather than reflecting the balance of supply and demand.

In order to successfully trade in oil, you must constantly be aware of every event associated with it. Especially for these purposes, online news services have been created for investors dedicated to the oil topic, for example, (http://www.newsnow.co.uk/h/Industry+Sectors/Energy/Oil+&+Gas).

Factors affecting the cost of oil

Before you make money on oil, you need to understand where it is moving and what affects it. The most important fundamental factors that have a strong influence on the price of oil are the following:

  • OPEC quotas for oil production introduced by OPEC (Organization of Petroleum Exporting Countries, OPEC). Quotas are an expression of the position of the states - the main suppliers of this energy source. Reducing quotas has an impact on the volume of raw materials that are offered for sale, which entails an increase in its value.
  • The deterioration of the political situation in the oil regions. Such events provoke supply disruptions.
  • Political decisionsrelating to the reserves of black gold in the United States regarding their reduction or increase.
  • Recession or macroeconomic growth. When the global economy is in active growth, the demand for energy, including oil, is growing.
  • Scientific developments and the release of new bills. For example, the start of production of cars with an alcohol engine provoked some weakening of oil in the EU market.
  • Speculative fraud. Very often, large investors engage in “large-scale games” that cause jumps in the oil market.
  • US dollar rate. The black energy price is tied to this currency. The USD / barrel exchange pair is a clear reflection of this dependence. A weak dollar always raises the price of oil.

The situation in the Middle East also directly affects the course of oil quotes. In times of increased military tension, terrorist attacks, another civil war, oil quotes are likely to show a decline. This is justified by the fact that when unleashing armed conflicts, the country urgently needs large amounts of money, and increasing oil production is the fastest way to get it. As a result, the market is flooded with supply and, as a result, the price falls.

A powerful factor influencing oil quotes is the United States of America. They are the largest consumer of this raw material, so the US is cheaper oil. The US government has been building up black gold reserves for many years, but has not yet spent it. If it happens that this stock goes to the market or the country starts using it instead of being purchased from suppliers, the market price of the energy carrier will plummet.

In addition, the mere existence of such a reserve already provokes many speculators to open lower deals, which significantly puts pressure on quotes. In those moments when there are reports of an increase in US oil reserves, do not hold on to the up position: it is fraught with losses.

How to analyze the oil market

When analyzing the oil market, first of all, you need to pay attention to the fact that the price of raw materials is directly dependent on the seasonal cost of gasoline and fuel oil, which, in turn, are formed by demand volumes. Demand reaches its peak levels in winter and summer.

In winter, the level of demand for fuel oil increases, which is the residual result of the processing of crude oil or products of its secondary processing. Fuel oil is used as fuel for boiler rooms, steam boilers, and also in the form of heavy motor fuel. The increase in its purchases in the cold period causes an increase in oil prices.

In the summer, the black gold market traditionally grows amid rising demand for fuel, which is associated with the holiday season.

  1. All data on oil reserves can be obtained from the US Department of Energy reports published on Wednesdays (http://www.eia.gov/).
  2. The most accurate WTI quotes are provided by the Chicago Mercantile Exchange (CME) on its website http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.htm.
  3. The Oil & Gas Journail website dedicated to the global oil and gas market (https://www.ogj.com/index.html) can also be useful.

Anyone who wants to understand how to analyze oil should follow the steps OPEC - The association of exporting countries of black gold, often referred to as the cartel of oil producers. During meetings of this organization, decisions may be made on the application of restrictions on oil production for participating states.

In the case of the introduction of additional restrictions, energy quotes usually grow in the long term. On the other hand, at the time of lifting the restrictions or easing them, it is quite reasonable to expect a downward oil rate and close long positions.

Another indicator for forecasting future deliveries may be the level of corporate investment in the development of new oil fields. A vivid example is the notorious "shale revolution", which allowed the United States to significantly increase oil production.

Globally, the pricing process consists of only three components.

  1. Investments in the development of deposits, the process of extraction and refining, as well as transportation - are the cost of raw materials.
  2. Oil reserves are an actual indicator of energy demand.
  3. Events in politics and economics - can affect the rate of black gold.

There are frequent cases when politics is the biggest factor influencing prices. Sometimes it happens that oil producers sell their goods at a price below cost under the pressure of political and economic aspects.

We give a simple algorithm for working on the news.

  1. На первом этапе трейдеру нужно отследить новость, способную породить колебания на рынке.
  2. Далее необходимо оценить, насколько сильным будет влияние на поведение котировок.
  3. После достижения ясности в двух предыдущих пунктах открывается сделка, которая соответствует прогнозируемому движению цен.

How much does Russia earn on oil

Russia is a country rich in minerals, but its budget is mainly formed by revenues from the sale of oil and gas, the cost of which depends on oil. The value of black gold for the Russian economy is so significant that almost every news release mentions anything related to the oil industry.

Several oil corporations operate on the territory of the Russian Federation, the absolute leader among which is the state-controlled Rosneft. The total crude oil production by all companies operating in the country averages 10.7 million barrels per day, which is comparable to the volume of production of this energy carrier in the United States and Saudi Arabia. At the same time, about 56% of the extracted raw materials are exported.

Russian oil is bought mainly by EU countries, as well as China. 24% of the total volume of exported crude oil is purchased by the Asian region, and 74% are bought by Western countries. North America buys about 1.5% of its energy exports.

To understand how much Russia has earned on oil and gas over the past 20 years, you need to look at the data on the country's foreign trade balance over the past two decades:

All these years, the balance has been positive, thanks to this state from 1994 to 2016. managed to earn $ 2.13 trillion.

Conclusion

Oil as an object of investment is of interest primarily because of its high market volatility. Due to the fact that for a short time the rate of this asset can change significantly, it becomes possible to obtain high profits. However, do not forget that the potential high profitability is always fraught with considerable risks.

Oil is the only raw material asset that can be traded through almost any dealing center. If you clearly understand how to analyze the market and what effect certain factors have on oil quotes, as well as being able to quickly make the right trading decisions, there is every chance of a quick deposit growth.

Another indisputable advantage of working with commodities, including oil, is the presence of constant demand. Black gold, unlike currencies or securities, is always in demand.

Traditionally, oil quotes are in trend. In other words, protracted lateral movements are not characteristic of this asset. Therefore, this raw material is suitable for traders who prefer a trend trading strategy.

Oil trading can be done using technical and fundamental approaches. For example, energy is heavily dependent on the dollar, so if the US currency is getting cheaper, oil quotes will immediately react to this. Armed conflicts, a change of power, natural disasters that occur in exporting states have a strong influence on the market.

Profitable trading in black gold will require deep knowledge and experience, as well as the availability of free time and money. For those investors who do not have the opportunity to work independently in the commodity markets, there are specialized companies that provide advice and provide transaction support services. Such services employ professional traders and analysts who provide recommendations regarding investing money and opening / closing trading deals.

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