Oil trading explained: how to trade oil

Key points

• Oil is one of the most traded commodities in the world due to its high liquidity and volatility.

• Brent and West Texas Intermediate (WTI) act as global benchmarks for energy prices.

• The top three oil producers worldwide are the US, Saudi Arabia and Russia.

• The OPEC organisation, made up of 12 countries, produces and exports around 40% of the world’s supply of oil.

• You can trade on derivative spot and futures prices through products like spread bets and CFDs.

Why trade oil? Key market drivers and opportunities

Oil is one of the most actively traded commodities, offering high liquidity and frequent price movements that create trading opportunities. You can trade oil directly at its market price through spot and futures markets, or take a more flexible approach by speculating on price movements using spread bets and contracts for difference (CFDs).

Its global importance underpins this activity. Crude oil is refined into essential products such as gasoline, diesel and petrochemicals, and remains the world’s primary energy source. It plays a central role across industries – used in everything from plastics and pharmaceuticals to vehicles, cosmetics and textiles. As global populations grow and demand for goods and energy increases, oil continues to be a key driver of economic activity.

When trading oil, it is important to understand the risks. Prices are constantly influenced by changes in supply and demand, which can lead to significant volatility. However, oil’s high liquidity allows you to enter and exit positions efficiently, even in large volumes, and typically with relatively tight spreads (around 3.0 points on average). By combining market awareness with a clear trading plan, you can better navigate the opportunities and risks within the energy markets.

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Approximately 80% of retail investor accounts lose money when trading CFDs, according to Financial Conduct Authority data. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Types of crude oil: Brent vs WTI explained

Each type depends on the geographic location of the oil field and the characteristics of the blend itself. While there are hundreds traded on the global market, two primary blends serve as global benchmarks for energy prices: Brent and West Texas Intermediate (WTI).

• Brent Crude Oil: This comes from several different fields in the North Sea. It is also characterised as a ‘light and sweet’ oil, although it is not as ‘sweet’ or ‘light’ as WTI. Up to two-thirds of global contract trades are on Brent.

• WTI Crude Oil: As the name suggests, WTI is sourced from US fields primarily in Texas, Louisiana and North Dakota. It is referred to as ‘light and sweet’ due to its low density and low sulphur content. These characteristics make it less expensive to produce and easier to refine than ‘heavy’ or ‘sour’ oils. WTI is the main benchmark in the US.

View the table below for our spreads, margin rates and prices for both blends that can be accessed on our Next Generation trading platform.

Pricing is indicative. Past performance is not a reliable indicator of future results.

Top oil-producing countries and global market impact

According to the US Energy Information Administration (EIA), the 10 biggest oil producers in the world are as follows:

Source: EIA

According to the most recent data from World’s Top Exports, the 10 biggest exporters of oil are as follows:

Source: World’s Top Exports

What affects oil prices? Key factors explained

Prices are highly volatile and heavily influenced by supply, demand and market sentiment. There are a number of factors that affect trading prices in the UK, including the following:

• Natural disasters, war, civil unrest

• Seasonal demand

• The influence of OPEC on production

• Population growth

• Global economic growth

• Shipping availability and freight rates

• Alternative fuel developments, including a demand for renewable energy

What is the role of OPEC?

The Organisation of Petroleum Exporting Countries (OPEC) is an organisation of 12 countries that produce and export around 40% of the world’s oil supply. It sets production targets based on global supply and demand, and because of its large market share, it has a significant influence on prices. According to its website, OPEC countries account for almost 80% of the world’s oil reserves, with the largest amounts in Venezuela, Saudi Arabia, Iran, Iraq, Kuwait, UAE, Libya and Nigeria. Other countries on the top 10 list that aren’t part of the organisation include Canada and Russia.

Historically, oil prices have gone up in times when OPEC production levels were reduced. Therefore, traders often use the group’s production targets as an indicator of the tightness of the energy markets when output is increased or decreased.

Tensions between OPEC and non-members can cause oil prices to change. For example, during the Covid-19 pandemic in 2020, the organisation’s allies agreed to cut production rates as the commodity’s value started to drop. However, Russia (which is not a part of the group) rejected the agreement, leading Saudi Arabia to initiate a price war, causing it to plummet even further.

How to trade oil: Step-by-step guide for beginners

Trading oil involves more than just reacting to price movements – you need a structured approach, the right tools and an understanding of what drives the market. Follow these steps to get started:

1. Research the market

Begin by building a clear view of current market conditions. Oil prices are highly volatile, especially during periods of political or economic uncertainty.

What to do:

• Follow daily news and insights on oil supply, demand and geopolitical events

• Monitor OPEC announcements, inventory reports and macroeconomic data

Example:

If OPEC announces a production cut, supply may tighten – potentially pushing prices higher. A trader aware of this through timely news could prepare to enter a buy position.

2. Choose your product

Decide how you want to access the oil market based on your trading style and objectives.

Your options:

• Spread bet or trade CFDs to speculate on price movements with leverage

• Invest in oil stocks or ETFs for longer-term exposure

Example:

If you expect short-term price swings after a major news release, you might choose to trade CFDs to take advantage of both rising and falling markets.

3. Pick your preferred asset

Focus on the type of oil you want to trade. The two main benchmarks are:

• Brent Crude – the global benchmark

• WTI (West Texas Intermediate) – commonly used in the US

Example:

A trader reacting to US crude inventory data may prefer WTI, as it tends to respond more directly to domestic supply changes.

4. Build a trading strategy

Create a clear plan that defines when to enter and exit trades, and how to manage risk.

What to include:

• Entry and exit points

• Position size

• Risk controls such as a stop-loss to limit potential losses

Example:

You might enter a trade when the price breaks above a resistance level, while placing a stop-loss below a recent support level to manage downside risk.

5. Strengthen your analysis skills

Use a combination of fundamental and technical analysis to guide your decisions.

Tools to use:

• Fundamental analysis: market reports, economic data, geopolitical developments

• Technical analysis: indicators like moving averages, Bollinger Bands and stochastic oscillators

Example:

If bullish news aligns with a technical breakout above a moving average, this could strengthen your confidence in a potential upward trade.

6. Start trading or practise first

Once you’re ready, you can move into live trading – or test your approach in a risk-free environment.

Your options:

• Open a live account to trade real funds

• Practise using a demo account with £10,000 in virtual funds

Example:

A beginner might use a demo account during a volatile period to test how their strategy performs before committing real capital.

By following these steps – staying informed, choosing the right instruments and applying disciplined risk management – you can approach oil trading with greater clarity and control.

How can you get involved using derivatives?

Spread betting

Spread betting is our most popular derivative product that allows traders to speculate on price movements for a wide selection of commodities, including both Brent and West Texas blends, rather than owning the underlying asset. It is a leveraged product, meaning that only a percentage of the full trade value is needed as a deposit to open a position.

Crude oil spread betting can be a risky process as the commodities market is particularly volatile, especially during times of economic crisis or instability. It’s an attractive product in the UK to many traders, as it allows you to trade tax-free, although tax treatment depends on individual circumstances and may be subject to change in the future. Despite this, the use of leverage can bring many risks also, as it helps to magnify profits if you placed a successful trade but equally, it can increase losses if the markets move against you.

Contracts for difference

CFDs are a type of financial derivative that works in a similar way to spread betting and allows you to open a position on crude based on whether you think the commodity’s price will rise or fall. The main difference between the two products lies in tax treatment, so learn more about how to trade oil CFDs.

Spot price vs futures

So, what’s the difference between spot and futures prices?

• The price of the spot (cash) contract reflects the current market value, and it’s a fixed guaranteed price.

• The price of the futures (forward) contract reflects the price that a trader will pay on an agreed delivery date at some point in the future.

Rather than purchasing the commodity at its spot price, storing it and then waiting for its value to increase within the market to then be sold again, crude oil futures predict how much it may be worth when it expires. It’s often an easier way to take advantage of cost fluctuations without physically owning the asset.

Technical vs fundamental analysis in oil trading

Crude oil is one of the most liquid commodities in the market, meaning you can trade it in large volumes with access to extensive data. To make informed trading decisions, start by conducting your own research and building a clear understanding of how the market behaves.

Step 1: Use fundamental analysis to understand market drivers

Begin with fundamental analysis, which focuses on external factors that influence oil prices.

What to do:

• Follow news releases, economic data and geopolitical developments

• Monitor supply and demand changes, including OPEC decisions

• Assess the economic stability of key oil-producing regions

Example:

If there is a news report about an oil spill or a production cut, supply may be disrupted – potentially driving prices higher. A trader using fundamental analysis would factor this into their strategy and look for buying opportunities.

Step 2: Apply technical analysis to time your trades

Next, use technical analysis to study price movements and identify potential entry and exit points.

What to do:

• Analyse charts, price patterns and historical trends

• Use indicators such as moving averages or Bollinger Bands

• Look for support and resistance levels

Example:

If the price of oil is trending upward and breaks above a resistance level on the chart, a trader might use this as a signal to enter a trade, aligning with the broader market trend.

Step 3: Combine both approaches for a stronger strategy

Oil markets can be highly volatile, so relying on just one method may not be enough. Combining fundamental analysis and technical analysis gives you a more complete view of the market.

Example:

If positive economic data (fundamental) aligns with a bullish chart pattern (technical), this can provide stronger confirmation for a trade decision.

By following these steps – analysing market fundamentals and validating them with technical signals – you can build a more informed and structured approach to trading crude oil.

Explore our crude oil trading platform

Sign up for an account to spread bet or trade CFDs on our commodity trading platform, Next Generation. We offer exclusive features for live account holders, such as a trading forum and access to unlimited technical analysis tools. This will also grant you access to a vast number of oil stocks, such as BP [BP], Chevron [CVX], ExxonMobil [XOM] and Shell [SHEL], as well as related ETFs.

Is there a commodity index that tracks oil?

With CMC Markets, it is possible to trade on a number of energies via spread betting and CFDs using a single position through our Energy Index. Trading on commodity indices gives you exposure to not only one commodity but a collection within the same sector, including Brent Crude, West Texas Crude, Natural Gas, Heating Oil, Gasoline and Low Sulphur Gasoil. This also helps to diversify your trading portfolio.