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Oil trading explained: how to trade oil

Published on: 22/12/2021 | Modified on: 08/08/2022

Oil trading is the process of buying and selling crude oil, one of the most actively traded commodities in the world. A raw material that is commonly extracted from Middle Eastern countries, it is referred to as “black gold” and “the mother of all commodities”. It’s popular among traders due to its high volatility during times of geopolitical uncertainty, as well as a changing supply and demand largely driven by the OPEC cartel. Read on to discover how to trade with us within the commodity market.

Why are traders interested in the commodity?

Oil is a popular commodity to trade due to its high liquidity and volatility. It can be bought and sold at its market value (oil spot price and futures) or through speculation in the form of spread bets and CFDs, as it presents a number of trading opportunities.

An extremely valuable resource, it can be refined into everyday products, such as gasoline, diesel and other petrochemicals, which are consistently in high demand. It is also the world’s primary energy source. Crude oil is used for manufacturing everything from plastics to petroleum, cosmetics to cars, and fabrics to pharmaceuticals. In a modern world, there is an increasing human population and consumption of agricultural and recreational goods, which results in a greater need for energy.

Speculating on the energy markets can be a risky move. Where supply and demand are constantly changing, so is the price of oil. However, it’s a liquid commodity, meaning that it can be traded in large volumes and boasts a relatively tight spread of around 3.0 points on average.

Types of crude oil

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 15 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.

Instrument Price Min spread Margin rate
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Pricing is indicative. Past performance is not a reliable indicator of future results.

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Which countries are the biggest producers and exporters?

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

Country Million barrels per day Market share
United States 18.61 20%
Saudi Arabia 10.81 12%
Russia 10.50 11%
Canada 5.23 6%
China 4.86 5%
Iraq 4.16 4%
United Arab Emirates 3.78 4%
Brazil 3.77 4%
Iran 3.01 3%
Kuwait 2.75 3%


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

Country Export value (USD) Market share
Saudi Arabia $113.7bn 17.2%
Russia $72.6bn 11%
Iraq $50.8bn 7.7%
United States $50.3bn 7.6%
United Arab Emirates $47.9bn 7.2%
Canada $47.6bn 7.2%
Kuwait $28.3bn 4.3%
Nigeria $25.2bn 3.8%
Kazakhstan $23.7bn 3.6%
Norway $22.7bn 3.4%

What are oil prices affected by?

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’s the role of OPEC?

The Organisation of Petroleum Exporting Countries (OPEC) is an organisation of 13 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

  1. Research the market. Remember that it can be very volatile, especially in times of political or economic uncertainty. Keep up to date with news and insights in order to stay reactive to changes in the market that may affect their positions.
  2. Choose your product. Decide whether you want to spread bet or trade CFDs​, or buy oil stocks and ETFs outright.
  3. Pick a preferred asset. There are two popular types of crude oil to trade, and these are Brent and West Texas Intermediate (WTI).
  4. Build a thorough and effective trading strategy. Discover the different types of order execution that you can use, and risk-management tools such as stop-loss orders can help to reduce losses when market volatility is high.
  5. Strenghten your knowledge of fundamental and technical analysis. For example, by reading market reports or using technical indicators on charts such as moving averages, Bollinger Bands, and stochastic oscillators.


Open a live account with us to start trading. Alternatively, you can start practising with £10,000 worth of virtual funds on a demo account.

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’s 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*. 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)

Contracts for difference (CFDs)​ are a type of financial derivative that work in a similar way to spread betting and allow 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.

Spread bet on over 12,000 instruments

Tips for fundamental and technical analysis

Crude oil is one of the most liquid commodities within the market, which means that it can be traded in large volumes and there is extensive data to analyse. In order to fully understand the market and be able to make future predictions, traders should perform some research of their own, including technical and fundamental analysis, and any other research they see fit. This will give an insight into market trends and also help to build knowledge of the asset itself.

For example, fundamental analysis is useful in evaluating the value of the energy, through company financial statements, news releases and the general economic stability of a region that you are trading in. For example, if there is a news announcement of an oil spill or cut in production, this will affect the commodity’s price and any related companies, which will need to be factored into your trading strategy. This is considered fundamental analysis​.

Studying price charts, graphs and technical indicators to extract numerical information is all part of technical analysis​, which usually is the second stage of the process. However, both strategies are needed in collaboration, as the commodity can be highly volatile and so it benefits to use a comprehensive perspective.

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, Chevron, ExxonMobil, and Royal Dutch Shell, as well as related exchange-traded funds (ETFs).

Is there a commodity index that tracks oil?

With CMC Markets, it’s 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.

Expecting big things in energy?

Diversify your portfolio and spread risk with our unique commodity indices, which allow you to take a view on a commodity sector as a whole with a single position.

Explore our commodity indices

FAQs

Is it better to invest in or trade oil?

When you invest in oil, you take full ownership of the asset and are required to transport and store the commodity, which can be a difficult process. Alternatively, some traders may prefer to speculate on oil’s price movements without owning it outright, although this also comes with risks of leverage and short-term volatility, as the market can turn at any point. Learn more on the debate of trading vs investing.

How much does a barrel of oil cost?

The average price of crude oil can fluctuate due to political, geographical, and social circumstances. Between 2020 and 2022, the price jumped from $-40 to almost $100, suggesting how external events like war and health crises can impact on the commodity. See our Brent price chart and WTI price chart for further analysis.

Who are the top oil consumers?

According to Statista, the top three oil consumers in the world are as follows: the US (17.2 million barrels per day), China (14.2 million), and India (4.7 million). While the US is also one of the biggest producers and exporters of the commodity, China and India are much further down the list for both.


*Tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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