Trading oil CFDs

Oil trading​ falls within the energy category within the commodities market​. The oil and gas industry produces international commodities such as Crude Oil Brent and Crude Oil WTI, as well as more local commodities including natural gas and heating oil for homes.

Crude oil prices can vary depending on their origin and current supply and demand, and oil trading prices fluctuate throughout periods of volatility. The two most commonly traded benchmarks of crude oil are Brent and West Texas Intermediate (WTI), both of which are available on our online trading platform. See here for our Brent crude oil price chart​ and WTI price chart​.

There are several differences between WTI and Brent crude oil that are important to consider when choosing your commodity to trade. Brent is sourced from the North Sea and has more prevalence internationally, whereas WTI can only be sourced from oil fields inland of Texas and Louisiana, for example. WTI is seen as a lighter and sweeter alternative crude oil with a lower sulphur content. Given the fact that Brent is sourced close to the sea, this reduces transportation costs in comparison with WTI, which is sourced from land. This can affect the price of both WTI and Brent CFDs when it comes to buying and selling raw commodities.

In recent years, Brent crude oil is usually more affected by political, economic and geographical pressures and instability. Because this raw material is more widespread for traders across the world, in times of crisis, its price tends to fluctuate and there is often a surge in Brent oil prices. As WTI is less widespread, it does not feel the effect of international events and therefore keeps a lower price throughout the year. These external factors are vital for your understanding of the oil markets and help to form part of your fundamental analysis​​.

Some traders enjoy the thrill of trading crude oil CFDs in such a volatile market. Leveraged trading, otherwise known as trading on margin, allows the trader full exposure to each financial asset. See here for our list of CFD margin rates​​ for the commodities market. Our margin rates start at 10% for both Brent and WTI crude oil, or a leverage ratio of 10:1. However, trading with leverage in such volatile markets also brings the risk of significant loss of capital, as losses will be magnified.

Contracts for difference can further be used to speculate on price movements in the oil market through a commodity futures contract. Futures trading is a contractual agreement between two parties to buy and sell an asset at a fixed price in the future. Whereas CFD trading is an over-the-counter product, futures are generally traded on a local exchange. Therefore, buying and selling oil futures is not specifically carried out through a CFD, although it gives the investor the chance to trade price movements of said future contracts.

Brent futures prices are generally higher than those of WTI, in line with their spot prices. This means that traders with knowledge in this field may find that their price movements are easier to predict. Read more about futures, also known as forward contracts​​, which are very similar products that we offer our clients.

It is worth noting that the size of CFD trades are measured in ‘lots’, and in this case, one lot represents 100 barrels of crude oil.

Let’s use the example that Brent crude oil is priced at £50 per barrel; this means that one lot is worth £5000. In order to calculate your possible profits or losses, you need to assess the difference between the opening and closing price of the position.

If you think that the Brent oil price will increase, you could buy and go long. If you think that the Brent oil price will fall, you could sell and go short.

Let’s say that after opening your position, the subsequent oil price increases to £55 per barrel and you decide to close the position. The difference between the opening and closing price stands at £5. In order to assess your profit or loss, you then multiply the difference by the size of the trade (£5 x 100). This means that there is a total profit of £500 from this position.

We offer alternative methods to trading CFDs within the commodities market. A spread betting account works in a similar way but allows traders to trade tax-free* on the price movements of crude oil, without owning the underlying asset. Spread betting also requires you to trade on margin; therefore, the same precautions must be undertaken when opening a live account.

Another method for investing in oil with a share of asset ownership is through ETF trading. Exchange-traded funds work in a similar way to shares in the stock market, as the trader becomes a partial owner of the asset. This allows traders to invest in certain oil companies that have a promising stance within the stock market. As the share price of the oil company rises or falls, so does the ETF accordingly.

We also offer trading on oil stocks, including oil supermajors such as Chevron, BP, Royal Dutch Shell, Total and Eni.

Read our complete guide to oil trading to find out the best method of oil investment that suits you.