Crude Oil Stocks: Invaluable Insights on Trading, OPEC and Prices

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The price of crude oil has been under the spotlight recently and given the potential volatility of this particular market, trading stocks in this sector takes a combination of know-how, good access to reliable data, and no shortage of guts, to make a call and put your money down to prove your theory right.

A good starting point if you are interested in trading crude oil stocks would be to visit http://moneymorning.com/tag/oil-prices/ on a regular basis in order to check how the market is faring.

It would also help if you had some insights into how to try and successfully trade crude oil stocks and potentially make a profit from oil futures.

Understanding the OPEC influence

There is no doubt that crude oil production by the Organization of the Petroleum Countries (OPEC) is a significant factor in helping to determine and influence oil prices.

It is easy to see why OPEC can exert such a level of influence when you consider that OPEC member countries are responsible for producing about 40% of the world’s entire supply of crude oil. It is also important to bear in mind that OPEC’s oil exports account for about 60% of the petroleum traded internationally.

In basic terms, when OPEC production targets are reduced, the price of crude oil rises in reaction to a perceived tightening of supply.

There are numerous historical examples of how OPEC’s spare capacity levels have impacted crude oil prices and you can also find plenty of examples where unplanned supply disruptions have caused a noticeable tightening in world oil markets, subsequently pushing prices higher as a result.

A prime example of economics

The economics of oil is centered around the surplus or perceived scarcity of oil at certain points, and the subsequent pressures it can bring to bear on prices. If you go back to the 1930’s, oil was so plentiful that the oversupply resulted in the oil price tanking to a nominal value.

It is clear how OPEC came about when you consider a scenario like this, with oil-rich countries collaborating in order to coordinate the price of oil and gain some greater semblance of control when it came to protecting prices.

OPEC recently reached their first major agreement in over a decade, when they agreed to cut production in order to support the market price of oil. Surprisingly, the agreement even included Russia, who actually agreed to comply in order to find a lower level of output, which will have the effect of supporting the price of oil.

How OPEC members attempt to control supply levels in order to support pricing levels is a classic game of economics, and it is not surprising that efforts are being made to do this, when you consider the bear market that oil has been in since 2014.

Hard to control volatility

Despite the level of control that OPEC tries to exert over oil prices, crude oil prices have brought a new meaning to the word volatility, with prices resembling a roller coaster ride when you see recent trading periods played out on a chart.

Despite the trading environment you are operating in when trading oil stocks, where prices can fluctuate on a daily basis, it is possible to learn how to interpret the underlying price trends, so that you look beyond the headlines and identify the bigger trend that is in play.

If you are able to do that, then you stand a much better chance of getting your trades on the right side of the market, provided you still remember the basics to help underpin your theories on where oil prices are headed.

If you remember how the prime rules of economics are often driving oil prices, this will allow you to understand that a headline will have a short-term impact, but supply and demand factors as well as geopolitical factors are much more influential in driving the medium to long term trends.

It might be worth considering downloading a software program like Metatrader 5, which allows you to make trades via your mobile. This could be useful when you want to act upon an opportunity that presents itself.

When it comes to trading crude oil stocks, when you understand what is driving and influencing prices, this can help in your quest to find a potential edge.

Melissa Thompson writes about a wide range of topics, always revealing interesting things we didn’t know before. She is a freelance producer for USA Today, and a contributor at Technorati. She lives in Utah with her 2 kids and husband. Melissa Thompson can be reached via LinkedIn or Twitter @melthompson88. Please follow and friend her on either site.