Trading strategy crude oil




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Trading strategy crude oilCommon Crude Oil Trading Strategies

Though all commodities require active monitoring for sound trades, crude oil is known for its heavy intraday volatility and should be handled with care. It is not uncommon to watch oil prices start the day off way down and then rally as markets come to a close (or vice versa). One of the most difficult aspects of trading crude is that sometimes its prices are reflective of how the overall economy is performing, and other times its prices signal how the economy will be performing. This commodity has its teeth sunk firmly into global markets and should be treated with respect from traders and investors. Finally, it is important to remember that as a primary trading instrument, developing trends in markets and how the majority of traders are behaving can also skew oil prices. Remember, the trend is your friend [see also Crude Oil Guide: Brent Vs. WTI. What’s The Difference? ].

For those who are uncomfortable with trading futures contracts, which are often quite dangerous, there are a number of ETFs to help establish exposure to this fossil fuel:

Trading the Crude Oil Inventory Numbers

Once a week, the Energy Information Administration (EIA) gives us a glimpse into what the future demand for oil is going to be by releasing its Crude Oil Inventory numbers. Traders love this information because the amount of oil commercial firms have in inventory impacts the price of oil in a relatively predictable way.

[VIDEO] Trading the Crude Oil Inventory Numbers

The more oil commercial firms have in inventory, the less demand these firms will have for oil in the future and the cheaper the price of oil will become.

The less oil commercial firms have in inventory, the more demand these firms will have for oil in the future and the more expensive the price of oil will become.

Of course, there are certainly other factors you should be looking at when determining the future price of oil so dont read the news in a vacuum.

What is the Crude Oil Inventories Number?

The Crude Oil Inventories number reports the number of barrels of crude oil commercial firms have in inventory. Commercial firms report their inventory levels to the Energy Information Administration on a weekly basis, but the EIA must still make some estimates to arrive at the final number.

Oil Stocks to Watch

The Crude Oil Inventories number is especially important for shareholders in the nations largest oil companies. When you see the Crude Oil Inventories number rising, it is a bad sign for oil companies and will typically have a negative impact on the price of their stocks because they tend to make more money when oil prices are high. When you see the Crude Oil Inventories number falling, it is a good sign for oil companies and will typically have a positive impact on the price of their stocks because they tend to make more money when oil prices are high.

Here are a few of the oil companies you should keep an eye on:

Exxon Mobil Corporation (NYSE: XOM)

Chevron Corporation (NYSE: CVX)

PetroChina Company Limited (NYSE: PTR)

BP plc (NYSE: BP)