Trading The Us And Uk Crude Oil Markets
The increasing strength in world economic data does not seem to be translating, just yet, into more demand for crude. While peak oil is a phrase on everyones lips it must be said that production from many parts of the globe is currently artificially constrained.
Producers seem willing to turn on the taps above $75, as a sort of profitable-commitment to world growth. While everyone blamed the financial institutions for the collapse in the global economy the impact of $147 per barrel of oil was not exactly a helpful factor.
Looking at the day-to-day trend more closely, oil looks to have found a ceiling as it struggles to get beyond the $80 level.
Whenever there is any strength in the US Dollar that has naturally led to weakness in oil prices as investors close positions, very much a flight from risk.
Strength in the equity markets and weakness in the Dollar normally translates into rising Oil prices. Although we are still seeing some good market rallies, it seems that dealers are less confident than in times past.
The failure to break permanently above $80 may be worrying the Crude Oil bulls a bit as all the normal impetus required seemed to be in place. If the Dollar starts to strengthen, unlikely as it might seem, we may find that dealers are pressuring the support levels again rather than the resistances.
Since the highs at $82 in the US WTI Oil contracts in October 2009 we have had a series of attempted rallies, all of them failing at lower and lower levels. Looking at the oil charts, we now have a very nice falling-trend-line-top to aim for.
Should we close above the trend line there may well be a reaction move to new highs. But, and there is always a but, the longer we remain below the trend easier it will be for the bears to drive prices lower.
So what should an investor look to do? I prefer to trade the oil markets through spread betting. Note though, there are downsides to all forms of investing and with spread trading you need to be careful because you can lose more than your initial investment.
On the plus side though, there is no capital gains tax, no stamp duty and no income tax on spread betting*.
Also, an interesting benefit is the number of markets that you can trade. Spread betting firms often offer thousands of markets from European and US shares to gold and Dollar/Sterling currency rates. Naturally you can trade both US and UK crude oil spreads.
With the volatile markets like oil, being able to short a market provides interesting opportunities. You do not have to speculate on markets to go up. If your research leads to you think the price of crude oil will go up, you can, of course, bet on it to go up. However, if you think that oil will go down you can bet on it to go down.
It is important to note though that spread bets carry a high level of risk to your capital so you should only speculate with money you can afford to lose. Like the adverts say, before trading, please ensure that spread betting matches your investment objectives. Make sure you familiarise yourself with the risks involved. If necessary seek independent advice.
* Based on current UK tax law, if you pay tax in another jurisdiction then tax law may vary.
by: Robert Thomas