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For the purpose of turning a profit, trading in oil entails buying and selling using various modes of analysis. For retail traders or retail speculation, traders will focus on the spot market through derivatives, such as futures, options and CFDs (Contract for Differences). These contracts, particularly for CFDs, are usually cash-settled transactions, which means traders seldom engage in these markets to take physical ownership of oil.
Considerable price fluctuations (volatility) can be brought about through shifts in supply and demand in the oil market, as oil, like gold and silver, is a finite resource. Oil’s high volatility contributes to its widespread appeal among commodity traders, particularly day traders and scalpers.
Exxon Mobil Corp. (XOM), Shell PLC (SHEL), and Saudi Arabian Oil Company (Saudi Aramco) are a few of the largest oil-producing firms in the world.
WTI crude oil is refined in America and was initially more expensive per barrel than Brent crude. This is due to a decline in North Sea output combined with a rise in oil extracted from US shale rock. It is believed by the industry that you can get better quality petrol (gasoline) from one barrel of WTI than normal crude oil.
Brent is the name given to a light crude oil made from a blend of crudes from 19 oil fields in the North Sea. Brent Crude is one of the three major crude oil price standards.
Saharan Blend (from Algeria), Djeno (from Congo), Zafiro (from Equatorial Guinea), Rabi Light (from Gabon), and many others are included in the OPEC basket. Due to its high sulfur content, OPEC oil is significantly less sweet than either WTI or Brent. Consequently, the price is often more reasonable.
The spot price is the current market price at which a particular asset, such as a commodity (oil or gold, for example) or currency, can be purchased or sold immediately.
In general, futures (the futures market) are contracts to trade a commodity or another underlying asset at a predetermined price and date in the future. Crude oil futures, for example, are agreements between buyers and sellers to deliver a specific amount of crude oil on a future date. The price of the oil is mostly determined by current spot pricing, while storage expenses and future predictions are considered in the futures market.
Oil options are agreements that give the holder of a contract the right, but not the obligation, to purchase or sell oil at a specified price if it rises or falls during a predetermined period. To gain exposure to oil in the options market, options traders will use either a call or put option.
At its simplest, a call option gives the holder the right (but not the obligation) to purchase the underlying asset at a defined price, known as the "strike," on a predetermined expiration date. On the other hand, a put option provides the holder with the right (but not the obligation) to sell the underlying asset.
Oil traders' pay in the United States can vary greatly from one trader to the next and can depend largely on performance. According to salary.com (https://www.salary.com/research/salary/hiring/oil-trader-salary), an oil trader's annual salary in the United States can range from $150,000 to $300,000 per year. An experienced oil speculator, of course, can attract better remuneration.
An oil trader must have a solid understanding of the market dynamics and devise a trading strategy that considers all the major factors that influence the market to profit from the movement of oil prices. These factors include risk, supply and demand, economic and political news: fundamental and technical analysis.
Market participants use technical and fundamental analysis to generate trading or investment decisions. There are several strategies traders can use to pursue profitable trading opportunities. This will be trader-dependent: There is no one-size-fits-all approach. Long-term trend followers, as an example, may employ a larger macro-outlook and use basic technical analysis tools to produce trading ideas for entry and exit.
Oil investors may be subject to varying taxes according to different nations and, on occasion, states. Consult a specialist if you need details about your tax obligations. Alternatively, visit the website for your country and contact the relevant tax authorities to ensure you comply with the rules and regulations.
In the United States, visit: https://www.irs.gov
In the United Kingdom, visit: https://www.gov.uk/government/organizations/hm-revenue-customs
Work Cited
"Overview Salaries Benefits Jobs Companies Questions Articles," Salary.com. United States Oil Trader Salary States.”Salary.com, 2022, https://www.salary.com/research/salary/hiring/oil-trader-salary. Accessed 10th January 2023.
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