Crude oil, also referred to as ‘black gold’ sometimes, is the raw form of petrol, diesel or kerosene that are used by consumers all over the world. It is a commodity that has the same properties, irrespective of the country in which it is mined. The demand and supply of oil has a lot of variations, impacting its price accordingly, and making the oil market an interesting venture for traders.
Your Personal Financial Adviser will explain everything about the oil market, who are the major players, why the prices of oil keep fluctuating and what determines its price in the consumer forms. Let us start with the basics of a barrel of oil. Economic demand and supply also drives the prices of the oil market, but there are several other impacting factors as well. These are government regulatory laws, taxes levied and initiatives like go-green which encourages a mass move towards solar fuels. The latter is very important since crude oil is a non-renewable resource obtained from fossilized humans and animals buried deep inside the earth millions of years ago. At the current rate of worldwide consumption of the various forms of refined crude oil; this resource will be soon depleted.
The biggest oil market players are some countries in the Middle East like Saudi Arabia and Iraq, and Texas in the U.S. The international body OPEC (Organization of Petroleum Exporting Countries) controls export of this commodity, rationing it out among countries. Any political unrest in this region, which is predominant in recent time, can affect the supply of precious crude oil and cause big jumps in the oil market.
Oil trading is very similar to stock trading, but it is done on the commodities exchange. Oil futures are now more popular than oils stocks; these involve a prediction of oil prices in the future. Consider a scenario where a high number of futures predict lower prices in the oil market. Producers will rush to sell more before the price actually drops. This will cause its demand to reduce and its supply and price will automatically go down. The CFTC (Commodity Futures Trading Commission) was set up to regulate this control that speculators had over the oil market, but they have not succeeded much in keeping oil prices from soaring. This industry is very profitable at least for the next few years and traders should include some component of oil stocks in their investment portfolio.
Also, you can find more information about the oil market from this video: