Energy Market Review for The Week of August 22, 2011

***Chart courtesy Gecko Software’s Track n’ Trade Pro
Past performance is not necessarily indicative of future results.

There is some short information for you guys who still keep an eye on oil trading market. You know, the energy market came off hard at the end of the week last week as crude fell from $89 to $81 very fast as the economy still is weak and the equity markets sold off. The Dow is back under 11,000 as turmoil is still rampant. Crude oil, gasoline, and heating oil look to continue lower but I believe $80 will be good support for oil and shorts should think about taking some profit in the low $80s. The market looks to be range bound from $80-$90 here.

Difference between Light Sweet Crude and Brent Crude Trading?

Are you into Oil trading? If yes, then you must have heard names such as Brent or WTI. Both are the most important varieties of oil. According to oil density, it is divided into various categories. Each type of oil does not differ only in the gravity, but also in the molecular characteristics, in the composition of elements and the content of sulfur. The prices of the Oil varieties are also different. But here, there is an interesting thing to note that unlike other commodities, a higher quality oil variety may not be costing more than the lower quality Oil and it’s quite possible that lower quality oil may be costing more. Below I discuss the two main varieties in relation to oil trading.
First oil variety is called WTI (West Texas Intermediate). This is the most important variety. This oil is also known as Texas Light Sweet (Sweet Texas Crude). This oil is extracted in the U.S. Its most important center is Cushing in Oklahoma . WTI is in the best varieties. WTI oil price is the most important price. That is, if you read a story in which the oil reaches $100 a barrel, it is the variety WTI. The WTI price is the global reference point (benchmark) of oil. However, many debates that despite of WTI quality, it does not represent the type of oil which should represent the world price. It should also be noted that it is increasingly difficult to extract oil of this quality and gradually the quality is also going down. It is listed on the NYMEX in New York.
Second Oil variety is called BRENT. This is one of the most important types of oil. In fact it is a mixture of varieties: Brent Crude, Brent Sweet Light Crude, Oseberg, Ekofisk, Forties .It is also known as Brent Blend. The price of Brent is used to price two thirds of all international oil business. This type of oil is also used as a point of reference, and we can see it in the news and newspapers. Brent crude produced in the North Sea, is a high quality oil (less than WTI).It trades on the ICE.
Although, the WTI crude oil is of better quality but it happens that BRENT oil costs more than WTI. Around four to five years ago, the difference between the price of Brent and WTI was around 10 USD. In recent days, due to the lack of capacity for refinement, WTI began to lose its attachment to the world price and now despite having more quality, it is cheaper than Brent. Another thing to note here is that the oil prices are directly related to the political situation of the world. Various political forces change the prices in their favour by increasing or decreasing the supply. So, if you are interested in oil trading whether it is light sweet crude or brent crude trading then you must remain up-to-date in international news or at least news of major oil producing countries.

Oil Trading Basics

In this era of globalization and internet, trading around the world has become very simple. Now People are doing trading sitting right in their homes but there is yet a trading field which has very high profit potentials and is still unexplored. This field is none other than Oil trading. Trading oil is exactly the same as trading Forex, stocks , or anything else. Oil 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. So, that if the price moves against us by a set amount then we can control the damage. 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.

The amount of capital you require for oil trading 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 they put in a stop of 90 pips (a $0.90 move on the price of oil).There are two types of Prices going on in the Oil market, namely spot price and future price. 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 but before jumping into Oil trading you must familiarize yourself with the basics terms of oil market.

There are 3 different types of crude oil in the oil industry. They are classified by geography, namely light (WTI), Brent North Sea, and Oman (sour).Crude West Texas Intermediate (WTI) is a very sweet high quality oil .This is the most common type of crude oil, which is trading in oil futures pit at the New York Mercantile Exchange. Then, there's Brent crude sourced from the North Sea. Brent crude oil is light and is ideal for the production of gasoline. Dubai and Oman crude is a light crude oil extracted from the Dubai and surroundings. The extraction site is important because it affects the cost of transport to the refinery. Light crude oil is more desirable than heavy oil because it produces higher yields of gasoline, while sweet oil commands a higher price of oil. Trade in crude oil futures these various markets is relatively simple because all the same basic factors that contribute to the economic and in their prices.
Last thing, do keep in mind that Oil Trading in futures involves a high degree of risk and is not suitable for all investors. As, History or Past performance is not indicative of future results. Therefore, before trading in oil, you must get the basic knowledge of the Oil market and oil trading.