The global economy runs on the supply of oil. You must have heard about the Peak Oil Theory. What this theory stipulated is that almost all the known reservoirs of oil have been discovered. No more new oil wells have been left to be discovered and exploited. What this means is the supply of oil in the world is finite and limited whereas it’s demand is growing with each year. With the development of nations like China and India, this demand is expected to grow more and more.
Now, the economics of oil prices is simple. With more demand and a finite dwindling supply that is being exhausted with the passage of time, the world is going to see the end of oil in the coming two to three decades. Rising demand and decreasing supply will push oil prices in the range of $200 in the coming years. Right now it is being predicted that crude oil prices will start hovering around the $100 per barrel range soon or something like $3.5 per gallon.
We saw a manifestation of this phenomenon, when in the summer of 2008, suddenly crude oil prices jumped from around $60 per barrel to around $150 in just a matter of months. The whole world felt the pain of high oil prices. Transport came to a grinding halt. People started looking for alternates. Alternative energy resources became highly popular. More and more money is being pumped into alternative energy technologies as never before. The prices have come down for the time being due to the global recession that started in 2008. With the end of this recession, demand is going to pick up again and we will again see crude oil in range of $150-$200 per barrel.
As a trader, you must be cognizant of this fact. We traders always try to profit from a trend that might last for many months. Once an uptrend starts in the crude oil prices, it may last for several months to years. Those savvy traders who can position themselves for trading crude oil in 2010 are going to reap huge profits.
The best way to trade crude oil is to trade crude oil futures contracts that get traded at NYMEX (New York Mercantile Exchange). New to futures trading, don’t worry. If you have been trading forex or stocks before, you can learn futures trading in a few months time. Just practice on your demo account and paper trade as much as possible on it for a few weeks to a month to become familiar with futures trading in order to start profiting from the rising oil prices in 2010! You can also spot trade oil with a forex broker!
Trading oil is exactly the same as trading Forex, stock indexes, or anything else. Trading, as opposed to buying shares, allows two big advantages. The first is that we can profit from falling prices just the same as rising prices, by selling rather than buying. The second is ‘leverage’ which allows us to effectively buy huge quantities with just a small deposit. This means we can pocket a decent profit from a small move up or down in price. Of course, this is potentially risky but we always put in an automatic ‘stop loss’ to close the trade should the price move against us by a set amount. Likewise, we put in an automatic ‘limit’ to close the trade for a set profit.
Many Forex brokers also allow you to trade oil, so setting up an account is no problem at all. Forex is mostly traded on the MetaTrader 4 platform and this often includes oil without people realising. In fact, most MetaTraders have all sorts of additional instruments, often shares and sometimes even including the DOW. To reveal these, you need to right click in the Market Watch window (where the currency pairs are displayed) and click on ‘Show All’.
Learn Oil Trading Basics from John Campbell. The members area includes an Oil Trading Expert Advisor as well or what you can call an Oil Trading Robot. Read what he says: ” I used to live in the grey and cold UK. Now, I live on a island in the Mediterranean, run several websites and make a living from trading Forex, gold and oil – see the view from one of my terraces. I have a great interest in statistics and probability theories, which leads me to experiment with betting systems. Of course, gambling is a mugs game but it is possible to make consistent money laying horses on Betfair using statistics and a simple selection method I’ve discovered. Beats the pants off all tipsters! I also sell a consistently profitable football betting system (European soccer).
We obtain our signals from a free, everlasting demo version of MetaTrader but you can actually place the trades anywhere you like, including spread betting. The amount of capital you require varies from broker to broker but most will trade mini contracts and need only a few hundred dollars in your account. The actual risk will be even lower than this because we put in a stop of 90 pips (a $0.90 move on the price of oil). MetaTrader shows the daily ‘spot price’ for oil and both this spot price and the oil ‘futures price’ are available depending on which broker you use. The futures price is simply an estimated price for oil for delivery at a set date in the near future. It really makes no difference to our trading.”
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