Oil is one of the most versatile commodities in the world. It is used in all corners of world industry, everywhere from textile production (see nylon, polyester, etc.) to agriculture, plastic, cosmetics and fuel to transport. So it’s no surprise that oil and all of its derivatives are the most traded commodities of the world.
There are many different regions that extract and sell crude oil and all of those regions have oil with slightly different characteristics. The two main characteristics are viscosity and sulfur content. The different kinds have different prices, so do not hold yourself to a single type or region.
The three biggest producers of crude oil are;
Overall, most of the extraction is done around the Middle East, having 5 of the top 10 listings on biggest producers.
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As for all commodities one of the strongest drivers of oils price is the supply and demand. But plenty of factors play into these terms when speaking oil. I have condensed some of the factors down underneath;
The movability factor
In these days a lot of policies are in place to make oil move around the world with ease. This has had a soothing effect on some of the natural pressures that apply to the supply and demand of other commodities. Since it is hard for any of them to influence the global market as the global community can easily get the same product from elsewhere, this can also keep certain producers in check.
The newcomers’ factor
Many new alternatives to traditional crude oil is coming onto the market. From Canada, oil sands are starting to be utilized as the shale oil from the U.S is pouring into the market. This adds to the global supply and can be expected to lower the oil prices. The extractions methods of these newcomers’ are more expensive than traditional oil, which mean they can first really compete when the supply is low.
The growing third world factor
It is no secret that there is being made efforts to reduce the fuel consumption in many developed countries around the world, but as many new countries have been raised to new levels of wealth, consumption and population, the International Energy Agency predicts a growing global demand. This growth will properly keep up for years to go, unless other materials and power sources are developed
The technology factor
A lot of effort is being put in to coming up with new energy technology to cut back our dependency on fossil fuels. Solar is starting to gain real ground, and as a trader you need to be conscious about these technological advances, since they can disrupt the markets of energy.
This has been a short introduction to what you need to keep your eyes and ears out for if you want to trade oil as a commodity.