How to buy and sell oil on the stock market
Investing in crude oil and petroleum companies:
Before considering how you can buy or sell crude oil it is important to know that trading in barrels of oil as commodities is not the only way to invest and make profits on black gold. In fact, it is also possible to speculate on the share prices of companies on the stock markets that exercise activities in this sector.
Investing directly in the price of crude oil requires a different technique and approach to that of investing in oil sector companies share prices in that the price of oil on the stock markets is particularly volatile which can present certain significant risks for traders that have little experience in this sector.
Investing in oil sector companies such as the major petroleum producers or those responsible for the oil production or transport infrastructure present certain advantages over traditional stock market investments. However, it is important to understand that the crude oil price and its movements will exert a direct influence on the value of these stock market assets.
To decide how you wish to proceed either through buying or selling oil online or buying shares in oil companies you should first reflect on your knowledge of these markets, your investor profile, your trading strategy, and the timeline envisaged.
It is also possible to complete these two types of investment simultaneously as the online brokers that provide the trading platforms where you can trade and speculate in international indices and stock market shares including many major companies in this sector also offer the possibility of trading in commodities such as crude oil.
Later in this article we shall specifically examine the buying and selling of crude oil.
The different ways of buying and selling oil :
There are, of course, various ways of investing in oil by buying or selling this raw material. For example, it is possible to use futures or forward contracts for this purpose. This is one of the preferred means of investing in the price of oil over the long term. However, investing in black gold futures contracts requires a certain knowledge of the market and the ability to effectively anticipate future trends.
Another medium that is currently experiencing a great deal of growth and which allows speculation on fluctuations in the price of oil concerns derivative products. This type of trading instrument is offered by online brokers or brokers and takes the form of CFDs or warrants.
These two methods therefore allow stock market investors to buy and sell barrels of oil on the market. Of course, this is not a question of physically buying and selling these barrels as this would require storing and moving them, but simply taking a position on the price of these barrels.
The choice of one or the other of these methods of investing in oil will depend above all on each person’s investor profile, their investment horizon and the capital invested or the level of risk they are prepared to take.
How to achieve good oil price expectations :
Before investing in oil, it goes without saying that an investor must know how to study the oil market and its environment in order to be able to detect in advance the future trends that this asset will follow. Indeed and whatever the type of investment envisaged, it is necessary to be able to spot upward or downward movements in order to buy or sell its assets at the right time.
Several external factors can indeed have a direct influence on the price of WTI or Brent oil and it is necessary to analyse them systematically before buying or selling barrels.
This concerns in particular the relationship of oil with the US dollar. Indeed, we know that like other raw materials such as gold or natural gas, the price of oil is quoted in US dollars. Thus, there is an inverse correlation between the value of the dollar and that of oil. This means that a strong dollar will make the purchase of oil less attractive to foreign investors because of the unfavourable exchange rate. This will therefore most often lead to a drop in demand and therefore a drop in the price of oil. The opposite is also true, since a weak dollar will make oil more attractive, increase demand and thus lead to higher prices.
Another very influential element with regard to the evolution of crude oil concerns the publication of American stocks. Indeed, the United States is currently the world’s biggest oil consumer. Thus, the state of stocks in this country, which are published on a weekly basis, is an important indicator for determining the level of demand. Here, it is important to compare these stocks with analysts’ forecasts. When these stocks are larger than forecast, it means that demand is weak and generally causes prices to fall. When inventories are lower than expected, this indicates rising demand and may cause prices to rise.
Finally, it is of course also important to study the supply of oil before buying or selling this raw material. Indeed, the price of oil is, as is the case for any asset listed on the stock exchange, defined by the strength of supply and demand. However, as far as supply is concerned, this paper examines several types of publications concerning producing countries and barrel production in general. In particular, we will keep an eye on the quotas set by OPEC and OPEC +, which are generally intended to influence prices up or down. Current events and conflicts involving these producer countries can also have a strong impact on the price of this commodity. In times of geopolitical conflict with one or more producing countries, it is common to see a significant rise in crude oil prices as investors fear a slowdown in supply to importing countries.
When can you buy or sell oil on the stock markets?
This is a question that is often asked by traders that are interested in investing in crude oil and in fact the answer to this question is more complicated than one might expect. In fact, to identify the best time to buy or sell oil you will need to complete precise analyses of this asset to detect rising or falling signals in its price.
It is also highly recommended to monitor the direct environment of crude oil and the factors that could influence a rise or fall in its price.
Here, as with other financial assets, we would use several different analytical methods concurrently to maximise the probability of obtaining realistic and pertinent signals in terms of the state of the market. The most frequently used analyses by the traders are of course the fundamental and technical analyses.
- Earlier we examined the fundamental analysis which consists of identifying and analysing the events, news and announcements that can influence the oil price as a commodity on the stock markets. It should of course be remembered that crude oil is a particularly speculative asset and the markets are particularly responsive to major announcements and publications. It is therefore also important here to take into account the possible reaction of the markets to such news and events.
- The second type of analysis is the technical analysis. This is based on the analysis and examination of the oil price charts over the medium or long term depending on the strategy implemented and its timeline. It is therefore necessary to carefully choose the type of chart, preferably one that is innovative and up to date that integrates the functions for a comprehensive technical analysis. This will avoid the need for you to waste your precious time on unnecessary calculations.
The use and display of several indicators simultaneously on stock market charts is actually possible using the recent software. Among the most popular technical indicators we can note the moving averages, the pivot points, the technical support and resistance levels, the MACD and the Bollinger Bands.
A good mastery of these two types of analyses is necessary to know when it is best to buy or sell oil through the identification of times of high volatility or particular trends with a short, medium or long term trading strategy.