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Thursday, March 28, 2013

Oil Trading

Oil trading is about the fundamentals.

More so than any other market, oil trading follows fundamentals very closely. Knowing these fundamentals can make oil trading a very profitable business for the retail trader. While there are always some odd variables, in general there are only a handful of fundamental factors the trader needs to pay attention to.
Without a doubt, one of the most important fundamental factors that come in the play with oil trading is the inventory number in the United States. The weekly petroleum status report comes out every Wednesday at 10:30 in the morning New York time. The US Energy Information Administration releases these reports that highlight how much oil is currently kept in the strategic reserve to the United States, as well as the net production of refiners and blenders around the country. The reason the report is so important to the oil markets, is that the United States is the world's largest consumer of oil.
Oil markets are also tied to political events around the world as well. This is most often seen in the Middle East, as the area is the largest exporter of oil on the planet. Anytime that there is some kind of military action in that area, you can pretty much guarantee that the price of oil will start to climb. The main reason of course, is that any act of war can disrupt the flow of oil from the Middle East to its large consumers like Europe and the United States. Also, it will push up demand for oil as militaries in action or huge consumers of oil.
Weather can also come into play when diagnosing what the proper price of crude oil should be. You will often see markets climb when a hurricane is coming into the Gulf of Mexico for example. The reason for this is that there are several oil refineries along the coasts of Texas and Louisiana. Hurricanes shut down production, and therefore cause a temporary shortage of oil based products for further refinery and distribution throughout the United States. Typically, unless there is some actual damage to the refiner, these movements are short-term.
Although the technical analysis of oil charts certainly shouldn't be ignored, the fact is that the oil markets are driven by fundamentals more so than most other marketplaces. If you are one to pay attention to world events, with a little bit of practice and time, you may find yourself to be a pretty good crude oil trader.


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