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How To Trade Oil: Navigating Prices Through Uncertainty

On Friday, oil prices remained consistent, but they're heading towards a second week of consecutive losses.


This trend raises questions: Why is this happening, and what should traders watch for in the coming days?


Dive in as we unravel the factors influencing the market and provide insights for future trading opportunities.


So which direction next?


Oil trading is like riding a roller coaster in the world of finance. The price of oil can go up and down because of many reasons, from politics to how much oil countries use.


oil , wti, Bar chart showing forex and commodities prices, green/red candles depict daily trading trends. Includes moving average, Bollinger bands, and RSI.

This can make it hard for traders. But, with the right know-how, you can use these ups and downs to your advantage.


Supply worries linked to conflicts in the Middle East have decreased, while the unpredictable demand outlook from China, the world's top crude oil buyer, played a significant role in defining the trading scenario this week.


“The fact that Israel’s ground invasion of Gaza has commenced without expanding the Israel‑Hamas war has given hope that disruptions to oil supply and trade can be avoided,”


Vivek Dhar, an analyst at Commonwealth Bank of Australia, said in a note.


Still, “any direct involvement of Iran in the Israel‑Hamas war will initially take Brent oil futures to $100 a barrel.”


Current Details:

Brent crude futures witnessed a slight uptick, increasing by 34 cents (0.4%) to settle at $87.19 a barrel as of 0735 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures edged higher by 41 cents (0.5%) to close at $82.87 a barrel.


Market strategist Yeap Jun Rong from IG commented, "Oil prices have managed to ascend, capitalising on the bolstered risk environment, primarily attributed to optimism surrounding the Federal Reserve's rate decisions."


However, he also added a note of caution, pointing out reservations concerning oil demand, especially given China's PMI data not indicating any concrete signs of a demand resurgence.


The recent data from China's National Bureau of Statistics showed a contraction in its manufacturing activity for October. Surprisingly, the official purchasing managers' index (PMI) fell to 49.5 in October from a previous 50.2.


On the brighter side, private surveys indicated an expansion in China's services activity, albeit at a marginal pace.


Geopolitical events, too, played a part. The ongoing Israel-Hamas conflict intensified, leading to humanitarian concerns. Yet, in the financial world, these tensions had the oil benchmarks increasing by more than $2 a barrel on Thursday.


However, as of Friday, Brent and WTI were set for a weekly dip of around 4% and 3% respectively.


In central bank actions, both the U.S. Federal Reserve and the Bank of England maintained steady interest rates, lending some support to oil prices and bringing back a semblance of risk appetite in the markets.


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Supply Dynamics:

On the production front, all eyes are on Saudi Arabia, the top oil exporter. Analysts expect the nation to extend its voluntary oil-output cut of 1 million barrels per day through December.


Additionally, the anticipated U.S. oil rig count data will offer insights into future production trends.


Bridging Fundamentals to Technicals: A Trader's Guide


For a trader, understanding the fundamentals is just one part of the puzzle.


The real magic happens when one can seamlessly transition from interpreting global events to applying that knowledge on the charts.


Bar chart showing forex and commodities prices, green/red candles depict daily trading trends. Includes moving average, Bollinger bands, and RSI.

So, how can one bridge the gap between these macro-level fundamentals and the micro-level technicals?

  1. Understand the Impact: Firstly, understand how a particular fundamental news or event can potentially influence a market. For instance, geopolitical tensions in the Middle East often affect oil prices. Knowing this, a trader can anticipate potential price movements in oil-related assets.

  2. Identify Key Levels: Before diving into technical analysis, identify critical support and resistance levels on your chart. These levels often act as psychological barriers and can indicate potential price reversals or breakouts.

  3. Sync with Indicators: Use technical indicators to corroborate what the fundamentals suggest. If fundamentals indicate a bullish oil market, look for technical signs such as a moving average crossover or bullish patterns in the Bollinger Bands.

  4. Volume is Key: Pay attention to trading volumes. A spike in volume can confirm the strength of a trend triggered by a fundamental event.

  5. Stay Updated: The global market is dynamic. New data is constantly released, and geopolitical situations evolve. Always keep an ear to the ground and adjust your technical analysis accordingly.

  6. Test and Refine: Like any strategy, bridging fundamentals with technicals requires practice. Backtest your strategies, refine them, and always be prepared to adapt to the ever-changing market conditions.

By effectively bridging these two facets of trading, one can cultivate a holistic view of the market. It allows a trader to be better informed, agile, and, ultimately, more successful in their trading endeavors.


Lets look at todays chart as an example.


WTI , Crude oil, Bar chart showing forex and commodities prices, green/red candles depict daily trading trends. Includes moving average, Bollinger bands, and RSI.

Intraday Trading: Oil and Forex

When diving into intraday trading for oil and forex, consider the following:

  1. Research: Stay updated on geopolitical events, economic indicators, and central bank decisions.

  2. Technical Analysis: Use indicators like Moving Averages, RSI, Bollinger Bands, and Pivot Points to predict price movements.

  3. Risk Management: Always set a stop loss to limit potential losses and determine profit targets based on resistance and support levels.

Today's Trade Recommendation:


Pair: WTI Crude Oil


Trade Direction: BULLISH


Trade Probability: 60%


Yesterday's Trend: Slight uptick with stability.


Pivot Point: Marked in the chart.


Indicators:

  • Volatility: Increasing

  • Moving Average: Trading above the MA, indicating a potential bullish trend.

  • Ichimoku: The price is above the cloud, suggesting an upward momentum.

  • RSI: Trending above 50, indicating buying pressure.

  • Bollinger Bands: Price is within the bands; watch for any breakout.

🎯 Targets for Taking Profits:

  • Buy: Target at the 1st Resistance: $83.20, 2nd Resistance: $83.70, and 3rd Resistance: $84.20.

❌ Stop Loss Guidelines:

  • Buy: Set the stop loss at $82.40.

Suggestion: Given the current indicators and geopolitical context, it's recommended to enter a long position for WTI Crude Oil with the mentioned targets and stop loss.


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How to trade oil:


Trading oil is both exciting and tricky. Why? It's because of two main things: the real-world events and the market charts we look at.


Events like political tensions and big decisions from banks can change prices. But so can demand, especially from big buyers like China.


When we put all this info together with market charts, it helps us see where prices might go.



This mix of info makes oil trading fun but also a big challenge. So, if you're trading, always check both the big news and your charts. It's the best way to make smart choices.


As with all investments, your capital is at risk. Investments can fall and rise and you

may get back less than you invested.

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