Oil remains one of the most important commodities for the well-functioning of the global economy, although a trend towards renewable energy is now accelerating. At the same time, it represents a heavily traded instrument in the financial industry, since it is volatile, impacted by numerous factors like economic prospects, demand/supply balance, or even the COVID-19 pandemic starting with last year.
Traders wanting to invest in oil during 2021 need to understand several basics, so they won’t be caught up by surprise when prices start to behave abnormally. More recently, crude oil dropped to a three-month low as the pandemic is expected to have an economic impact during the fall, which makes it even more critical to know how this market functions.
Crude and Brent Oil
One of the first things to discuss is the difference between crude and Brent oil. Refined in Northwest Europe, Brent is a light crude oil, containing approximately 0.37% sulfur, suitable for the production of petrol and middle distillates.
Crude oil or West Texas Intermediate (WTI) is the preferred measure and pricing model, slightly sweeter and lighter than Brent. Due to advancements in oil drilling and fracking, this is cheaper as compared to Brent by approximately $10, except for periods when there are rising geopolitical tensions in countries that have large oil reserves.
OPEC and Oil Supply
The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental entity created to coordinate and unify the petroleum policies of its member countries, including Saudi Arabia, Indonesia, Qatar, Libya, Algeria, or the United Arab Emirates, among others.
Monitoring OPEC decisions is important for those wanting to trade crude oil via the MT4 platform, mainly because this organization increases or decreases the supply based on demand or changing economic conditions around the world.
Demand for Oil and the COVID-19 Pandemic
Due to the COVID-19 pandemic, oil demand dropped as lockdowns were imposed around the world. As the economies reopened, the price of oil started to recover and at some point, managed to reach levels not seen since before the pandemic started.
As of late, oil is back under pressure, the reason having to do with rising worries related to the delta variant, which is assumed to be spreading fast. That could act as a drag on the economic recovery, keeping the oil demand pressured again. Monitoring pandemic-related developments is thus very important, given traders can anticipate how market participants will allocate capital when trading CFDs or other oil-related derivatives.
Is Oil a Good Instrument to Trade on?
Due to elevated volatility, both crude and Brent oil were trending instruments for the past year. Traders need prices to move impulsively in order to generate returns and as the effects of the pandemic started to unraveled, the commodities market was one of the most active. It is possible to use technical analysis, same as with trading stocks or currencies, yet in this case, the importance of demand/supply balance plays a more important role.
Hey, this is Johny Sehgal. I am the owner and caretaker at Finance Jungle. I completed my education in BSC and now heading towards the digital marketing industry. I usually have interests in reading, playing games and watching movies. I also love to write content based on quality information. The main motive of mine is to provide the top and best quality information to my readers. Finance Jungle is the blog for the same.