Trading the Crude Oil Market. Brent vs WTI: Fundamental Analysis
Hey Valutraders! Valutrades gives you the opportunity to trade the Crude Oil Markets on their MT4 and MT5 platforms.
So? What are these oil markets?
Brent Crude, as the name suggests, represents the oil pumped from the North Sea between Scotland and Norway, from the Brent Oilfield.
We refer to the trading instrument as UKOil which you will find on your MT4 and MT5 platforms.
Brent Crude is categorised as a light, sweet crude which is ideal for refining into fuels.
WTI is found on your platform as USOil and it is also a light, sweet crude.
It is mostly from land-based sources in the Permian Basin in Texas and New Mexico and it is also called NYMEX in trading circles.
Most of this Crude Oil is stored in tanks in Cushing, Oklahoma and it is there that the price of WTI is established.
You will note on your charts that the price of WTI is generally less than that of Brent as WTI is cheaper to produce and store.
There are traders who monitor the difference (the WTI/Brent spread) and trade it but that is a topic for another blog.
As you can see from the two charts, price action is almost identical between the two instruments with only a few exceptions.
If you have learned anything from the Valutrades lessons, videos and blogs, it is that price movement is about supply vs demand.
Oil, as a commodity, is no exception.
When oil is in demand, the price rises.
When demand falls, the price falls.
When the supply (inventory) of oil rises, prices fall.
When supply falls, prices rise. Simple…or is it?
When OPEC (Organisation of Petroleum Exporting Countries) members meet, they often decide on production levels.
Analysts and traders watch these meetings and try to read about rumours beforehand.
If OPEC calls for a production cut in the future, prices rise.
If they call for higher production (which means higher inventories) prices will fall.
Another area to watch is the perceived demand by large economies.
By large economies, we are usually referring to the US and China.
Any sign of economic trouble in either of these regions will signal a future demand drop and prices will fall.
The contrary is true of course.
Geopolitical tensions and disasters like floods and earthquakes not only affect gold but also affect crude prices especially if the region is an oil producer.
If you are paying attention, often these problems are temporary and can give us trading opportunities.
As usual, however, always trade in the direction of the trend.