Crude Oil Trading: Is Now The Right Time to Trade?

  • Trading Systems
  • 27.01.2023 05:40 am

Image source:

Crude oil trading is often volatile but remains one of the more popular trading options thanks to the massive fluctuations in its supply and demand. This volatility means that smart traders stand to gain a lot from choosing the right moment to invest and knowing when to pull back and sell. If you’re looking at crude oil trading, here are some things to be aware of as we head into a new year of trading. 

Crude Oil Price in 2022

In the past 12 months, countries worldwide have seen significant economic and political upheavals that have resulted in major shifts in the price of crude oil. This is in part due to the impact of the Ukrainian-Russian conflict, which resulted in global prices soaring to around $120 a barrel in May 2022. This wasn’t to last, however, as the price stabilised shortly after, falling to the 90s in September where it has since fluctuated to slightly higher levels than in the months leading up to its meteoric rise.

Traders using a crude oil trading platform would have seen huge gains by selling between April and June, with their profits falling off towards the end of the year as the price fell back to hover at the $80 a barrel mark.

A Closer Look at the Middle-East

After years of back-and-forth, Lebanon and Israel finally resolved their maritime border dispute late in 2022. As a result, Lebanon is pushing ahead with its gas exploration plans. Should their environmental impact studies be completed timeously, drilling may start later in the year. Israel also signed off on an energy exploration deal off the coast of Morocco, further cementing the Israel-Morocco relationship.

While some countries look for new sources of oil, China looks to improve its refining capacity and its relationship with Saudi Arabia with the finalising of a deal for the construction of a Saudi-state-owned petrochemical complex in China. This deal provides the cornerstone of several other agreements between the two countries. China also signed a major gas deal with Qatar, which will see Qatar provide it with 4 million tons of liquefied natural gas annually for the next 27 years. This is on top of a deal that Qatar signed with Germany, which will see the mostly Russian-oil-dependent country start to receive Qatari oil from 2026.  

The Shift Towards Renewable Energy

As the price of crude oil soared to almost record levels, many countries sought to strengthen their move towards renewable energy. Solar energy production, in particular, should see a steep rise in the years to come as countries attempt to reduce their gas and oil dependence. Despite their investment in the petrochemical plant in China, Saudi Arabia made big moves in this sector, announcing plans for the building of both a solar plant and a wind project as well as the building of a green hydrogen plant.

What Does That Mean For Oil and Gas?

Despite the move towards renewable energy options, Qatari leadership still stands firmly behind crude oil, encouraging investment in gas and oil throughout the year and the increased demand will see more gas and oil mining than ever before. While this does not bode well for the environment, it is perhaps encouraging that much of the funds for investment in green energy will also come from profits made due to the fluctuations in the crude oil price. In September 2022, after announcing record profits over the past eight years, BP revealed plans to dedicate an additional 10% of its total spending on low-carbon energy in 2025 and then to 50% by 2030. However, the road to reliance on renewable forms of energy is a long one, and many market experts expect the price of oil to continue to remain solid for now.

What Does This Mean for Traders?

In the short-term, reliance on crude oil will continue to drive prices up, which should net traders a healthy profit if they choose to invest at the right time. The start of the year saw oil trading around the $80 a barrel point, this despite OPEC+’s decision to cut production of 2 million barrels of oil per day from October to December in an attempt to maintain the high prices of oil. Should OPEC+ feel the need to implement more production cuts following their next meeting in February 2023, the oil price could stand to rise once more, meaning good news for investors who choose to capitalise on the current state of the market.     

Thanks to its volatility, investing in crude oil continues to present a significant risk to investors. However, savvy traders can mitigate these risks using different strategies, and oil remains a decent diversification option for traders with a finger on the pulse of the markets who are willing to take a chance on big profits. 

Related News