Crude oil is one of the most interesting assets you can trade in world of finance. This is because it is arguably the most important commodity in the world. As a result, it tends to be volatile, which leads to fresh opportunities for traders. If you’re interested in trading oil, after opening an online trading account you’ll need to understand a few terms about crude oil. This article will highlight some of the most important terms you need to know.
WTI: This refers to West Texas Intermediaries. This is the benchmark of the crude oil that comes from the United States. It has a lower density and has low sulphur content.
Brent: Brent Crude Oil is the global benchmark of crude oil. It mainly refers to the oil that is extracted from the North Sea. It is also sweet and low density crude oil.
WTI-Brent spread: This is the difference in price between the price of Brent and WTI crude oil. The price of Brent is usually more expensive than that of WTI.
Hydraulic Fracturing: This is a method of oil extraction, which is also known as fracking. The process was developed in the United States. In it, water mixed with other chemicals is pumped at extremely high pressure into a well. Unlike the traditional method, the well goes down vertically and then branch horizontally.
Barrel: This is the most common unit of crude oil. One barrel is usually made up of 42 gallons or 158 liters of crude oil.
Barrel per day: This is the number of barrels that are mined every day. At present, the US is the biggest crude oil country with more than 12 million barrels of crude oil every day.
Energy Information Administration (EIA): This is an agency within the US Department of Energy that collects, analyses, and disseminates data in the energy sector. As a trader, you should always read the weekly inventory numbers. You should also read its monthly reports.
American Petroleum Institute (API): This is the largest trade union in the United States representing employees in the oil and gas industry. The body releases important inventory data every week.
Organization of Petroleum Exporting Countries (OPEC): OPEC is an organization, often known as cartel, that represents 15 of the biggest oil exporting countries. The de facto leader of this group is Saudi Arabia. OPEC+ refers to the OPEC countries together with Russia.
Upstream: These are operations that happen where the crude oil is being mined. Activities in this level are exploration and production. Companies in this category are ExxonMobil and Sinopec.
Midstream: These are operations that involve processing, storage, marketing, and storing crude oil. Examples of companies in this category are Enbridge and Transcanada.
Downstream: These are operations that include refineries, distributors, and retail outlets. Examples of companies in this category are Shell and Total.
Refining: When crude oil is extracted, it is taken to a factory that cleans it using chemicals. The goal is to make it useful for daily use. The biggest refinery in the world is the Jamnagar refinery in India.
Technical Analysis: This is the process of using technical indicators to help you make trading decisions. The most common indicators in crude oil trading are commodities channel index, moving averages, and the Bollinger Bands.
Fundamental Analysis: This the process of using the prevailing market news to help you make trading decisions. The most important fundamental analysis information is the inventory numbers and any other crude oil related news.
These terms should help you understand the oil market. Take time to learn them before you start trading. Once you’re ready, easyMarkets offers crude oil plus other commodities, as well as comprehensive guides and an easy-to-use platform to help you get started.
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