How to trade oil: crude oil trading tips for beginners in 2024

By:

James Knight

James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.

 & 

Prash Raval

Prash is a financial writer for Invezz covering FX, the stock market and investing. For over a decade he has traded spot FX full time while... read more.

Updated:  Mar 27, 2024

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14 min read

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This page explains how to trade oil online in 2024. Learn about the different ways you can trade oil, what moves its price, and why it might be a good addition to your portfolio. 

Can I trade oil?

Yes, trading oil is straightforward and available to anyone using an online trading platform. Oil is one of the most popular commodities for trading and you can trade oil through many different avenues, including futures contracts, oil options, oil exchange traded funds (ETFs), or CFDs.

To decide on the best approach, you will need to consider your ultimate goals, risk tolerance, and time horizon. Then you can choose a strategy based on your specific objectives. 

Where can I trade oil online?

You can trade crude oil with an online trading platform, such as Plus500 . This is our top-rated platform for oil trading, offering competitive fees, top-of-the-range security features, and helpful educational content to get you started.

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What is oil trading?

Oil trading is the practice of buying and selling oil over a relatively short space of time, with the aim of making money from the changes in price. Oil traders usually look to capitalise on short term price movements, unlike traditional investing, where investors focus over the long term.

Most crude oil trading takes place using futures contracts or CFDs. These are known as ‘derivatives’ – products that represent the value of oil, and which can be freely traded without any requirement to take physical ownership of the black stuff.

These products make crude oil trading much more accessible to the average trader. As oil prices typically fluctuate within a range of outcomes, they allow you to predict both price rises and a fall in price, allowing you to utilise knowledge of the oil industry to predict future price movements in any direction.

What oil markets can I trade?

‘Oil’ can refer to a variety of different products, each based on a different type and grade of crude oil. Here’s a look at a few of the key oil markets available to trade. 

• Brent Crude. Brent crude oil is a light, sweet crude oil. It serves as a major benchmark price for the global oil trade. Brent is sourced from the North Sea and is easily accessible on many of the best oil trading platforms. 
• West Texas Intermediate (WTI). WTI oil is the main benchmark for oil pricing in the United States. WTI refers to crude extracted from U.S. oil fields, mostly located in Texas, Louisiana, and North Dakota. 
• Dubai Crude. Dubai Crude is sourced in the Persian Gulf and is a benchmark for pricing oil exports from the Middle East to Asia. 
• OPEC Basket. OPEC Basket is a weighted average of crude oil prices from the OPEC member’s streams. It can be used to monitor price movements among OPEC producers. 

Though global oil prices are typically correlated, they are affected by different factors. For example, Brent Crude is sourced in Europe and often has to be transported through the Suez Canal. When shipping through the Canal is disrupted and transport is forced to reroute around Africa, it can cause Brent to trade at a premium to WTI (which generally doesn’t go through Suez).

You can trade crude oil futures contracts on the benchmarks above using a commodities exchange with access to the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE). 

Ways to trade oil

There are several options available when it comes to trading crude oil and the one you should pick depends on your budget, experience, and the timeframe for seeing returns. Here’s a look at the various ways you can trade oil online.

• Trade crude oil CFDs. Contracts for Difference (CFDs) are a popular way to speculate on oil price movements without having to own the physical asset itself. This makes them ideal for commodity trading, where it’s not practical to own and store large quantities of oil. With CFDs, you can profit from both rising and falling prices. CFDs also offer leverage, which can amplify your exposure to the crude oil market. 
• Oil spread betting. Spread betting is a trading method that allows you to speculate on the price movements of oil without owning the physical commodity. With spread betting, traders can take positions on whether the price of oil will rise or fall. You can use leverage when spread betting oil. All profits are also tax-free. Note that spread betting is only permitted in the UK and Ireland.
• Trade crude oil futures. Futures contracts are the most common way to speculate on short term price changes. They are an agreement to make a trade at a future date for a pre-agreed price. oil futures contracts require a detailed understanding of what impacts short term prices, and are most suited to someone with experience in the market.
• Trade crude oil options. Options let you buy or sell oil contracts at a predetermined price on or before a specific future date. oil options trading requires some expertise but allows traders to capitalise on price changes and manage risk, which makes it popular with people familiar with the oil market.

Should I trade spot oil or crude oil futures?

It depends on several factors, most importantly your level of experience. Futures trading is more complex than simply trading the spot market (which refers to teh current price of oil). When trading oil futures contracts it’s crucial to have a good understanding of the market and the various factors that can impact prices. 

With spot trading, you still require a certain amount of expertise and knowledge but can use a more beginner friendly trading platform to get started. 

How to trade oil

Trading oil is a simple process. Before you begin, you’ll need to register with a trusted online broker to access the oil market. Follow the steps below to learn how to trade oil.

What moves the oil price?

Not all commodities move in the same way and oil has several unique features that make it independent. Below are some of the key factors at play.

• Supply and demand. Like most financial markets, the biggest driver in the price of oil is supply and demand dynamics. When supply exceeds demand, prices usually fall, and when demand is higher than supply, prices rise. According to the Energy Agency’s (IEA) latest report, demand is expected to rise by 1.9 million barrels per day in 2024. 
• Geopolitical tensions. Political instability, wars, or issues in major oil-producing regions can impact supply chains and contribute to price volatility. For example, the Russia-Ukraine conflict contributed to massive price disruption, while many oil companies are state-owned in the Middle East, so tensions between those countries and the US and Europe can cause significant issues.
• OPEC. The Organisation of the Petroleum Exporting Countries (OPEC) plays a significant role in influencing oil prices through production cuts or increases. OPEC typically uses its hold on crude oil production as a political tool. 
• Global economic growth. Economic growth across the world is a key driver in oil demand. When the global economy is thriving, oil demand tends to rise, putting upward pressure on prices. Conversely, downturns or recessions can lead to lower prices. 
• Production costs and technology. Exploration, drilling, and extraction costs can impact supply levels and consequently prices. Technological advancements that improve efficiency can help lower costs. 
• Inventory levels. The price of oil can also be impacted by inventory levels in both major consuming nations and globally. Low levels often signal tighter supply and can drive prices higher, while high inventory levels can lead to oversupply and lower prices. 

What to consider when you trade oil

When you begin trading oil, it’s important to approach with a well thought out strategy. Considering a range of factors before trading can save you time and money in the long run. Use the helpful tips below to plan your oil trading strategy. 

What are your trading goals?

Before you start, you should clearly define your trading objectives. Are you seeking quick gains, or will you be focused on a longer time frame using swing trading strategies? Knowing your goals before you start can help guide you in your strategy and also which oil market to use. 

Does oil suit your risk tolerance?

Make sure you’re comfortable with the potential for market fluctuations. If you’re a short term trader, then ensure you’ve checked the historical price chart for oil to determine if it’s volatile enough for day trading. 

Will trading oil add diversification to your portfolio?

Many traders focus on more than one market at a time and diversification is one of the core principles to follow. When you trade oil, make sure it complements the other markets you trade. For example, if you already trade several similar commodities, you may be better off choosing another commodity market to spread your risk. 

Take the time to study the oil market dynamics. 

Like many commodities, oil has unique characteristics and supply and demand fundamentals. To trade oil, studying the broader oil market, especially historical price trends is essential. Before trading oil, you will need to understand the factors that influence its value. 

Choose the right trading method.

We’ve already discussed the options available to you to trade oil. Each has its own advantages, so you should select the one most suited to your trading goals. For example, trading oil is best done via futures, options, CFDs, and spot. You could also trade oil exchange traded funds (ETFs). 

Is oil a good market to trade?

It depends on how you expect the economy to perform in the next few months. Oil helps keep the global markets going, so its price is closely tied to overall economic performance. However, an uncertain political situation can mean a lot of volatility in the oil price and means you have to be careful, particularly if you’re a new trader.

An alternative, and safer, way to get some exposure without needing to manage the day-to-day trading is by buying stocks in the best oil companies. Businesses like Shell and Glencore are a substitute for trading oil itself.

What are the risks of trading oil?

Trading oil has the potential for significant rewards but also carries risks you need to be aware of. These risks are the same across the overall commodity market, but for oil, several more specific ones apply. Below, we’ve explained the main risks of oil trading.

• Volatility. The oil market is known for its price volatility. Compared to other markets, the price of oil can widely fluctuate daily. It can be costly if you’re unprepared for the volatile nature of the oil market. 
• Macroeconomic factors. Oil prices are affected by several macroeconomic factors, such as industrial demand, inflation, interest rates, dollar strength, and geopolitics. Before trading oil, you should have a good understanding of these. 
• Regulatory risks. Government policies can play a role in the way oil prices move. Export restrictions or changes in tax regulations could introduce unforeseen risks. 
• Supply disruptions. Unexpected supply disruptions, due to natural disasters, political instability, or conflicts in major oil-producing regions, can cause sudden price spikes or drops.
• Speculative trading. The futures market for oil can quickly be impacted by speculative traders. Prices can fluctuate very fast and volatility can increase. Large institutions or hedge funds with substantial positions can impact the market.  

Oil trading strategies

There are diverse opportunities when trading oil, and you can use various strategies to make the best decisions. Understanding these strategies is essential to navigate the oil market effectively. Below are several general trading strategies that can be applied to oil trading. 

• Trend trading. Trend trading is a basic strategy and involves identifying and following the prevailing price direction of oil. Technical indicators like moving averages can help in identifying trends. You can also look for higher highs or lower lows in oil price action. Traders look to profit by entering positions in the direction of the established trend, whether an uptrend (bullish) or downtrend (bearish). 
• Range trading. When the oil market is not trending, it will consolidate or move within a defined range or channel. You can use a range trading strategy whereby you aim to buy at the lower end of the range and sell at the upper end. Understanding support and resistance levels within a range is essential to trade this strategy effectively. 
• Moving averages strategy. Moving averages are technical indicators that smooth out price data and help identify trends. One common strategy is to compare short-term moving averages (e.g. 10 day), with longer term moving averages (e.g. 50 days). You can then look for crossovers and divergences between these moving averages to find signals for buying to selling oil. 
• Breakout trading. Breakout trading involves identifying key price levels, such as support and resistance, and entering positions when the price breaks through these levels. Traders expect the breakout to lead to a significant price movement in the direction of the breakout, allowing them to capture potential gains.
• Fundamental analysis. Fundamental analysis is a strategy used to evaluate the intrinsic value of oil. This means rather than focusing on oil ‘s price chart, you can analyse data like supply and demand, geopolitical events, and other variables that impact its price. You can then use your findings and technical analysis to place a trade. 

The above strategies are just a few of the many that you can use to trade the oil market. Remembering that each strategy has its own rules and risk management techniques is important. Professional oil traders often combine multiple systems and adapt their approach to market conditions. 

Bottom line

One of the key benefits of trading the oil market is the various ways you can get involved. There is a trading vehicle for everyone, from oil exchange traded funds and stocks for long term speculators to spot oil, futures, and CFDs for short term traders. A trusted and regulated trading platform is a must if you want to navigate the oil industry successfully. 

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