The world’s economic and political systems are unique and provide investors with numerous opportunities to profit from the volatility of crude oil. This asset class can also be used to develop long-term holding strategies and short-term swing trades. In addition, the rising energy sector volatility has also raised the bar for long-term investing.

Unfortunately, many investors fail to capitalize on the opportunities that come with the volatility of crude oil. They may not have the necessary knowledge about the various factors that affect the market’s behavior, or they may be unaware of the hidden risks that can affect their earnings. To help budding investors diversify their investments and profit from this highly lucrative market, here are five critical steps to make a profit trading Brent crude.

1.   Understand Crude Oil Price Trends

The perception of supply and demand mainly influences the factors that affect the price of crude oil. Oversupply and falling demand are some factors that have driven the market’s behavior. However, rising production and declining demand also contribute to price movement.

The combination of positive and negative influences on crude oil prices can create powerful price trends. For instance, the surge in the price of crude oil from 2008 to $145.31 was an unprecedented increase. Similarly, the oil price collapse from August 2015 to $37.75 can be considered a powerful selloff.

All in all, Brend crude prices can change dramatically because of various political and economic factors. Price action can also build narrow trading ranges as crude oil reacts to varying conditions.

2.   Understand the Traders

Professional traders and hedgers are the main players in Brent cruder trading. They play a variety of positions to offset their physical exposure while also speculating on the market’s long-term direction. Retail investors and traders, on the other hand, are not as influential in the market.

The influence of retail investors increases when the price of crude oil surges. This type of movement attracts small players into the market who are usually unsophisticated and have little exposure to the underlying trend. This leads to a somewhat unpredictable market with significant price declines and climaxes.

3.   Understanding WTI and Brent Crude Oil

The two primary marketbenchmarks for traders of crude oil are the West Texas Intermediate (WTI) and the Brent crude. Both of these are produced from different sources, such as the US’s Permian Basin and the North Atlantic’s multiple fields. Although Brent has become a more accurate and timely indicator of global pricing in recent years, the price of crude oil on the world futures market was more heavily traded in 2021 than the previous year.

Although the prices of both crude oil grades were within a narrow band for several years, they started to diverge in 2010 due to the sudden increase in supply and the falling demand environment. The rise of US oil production, which was mainly due to the development of unconventional techniques such as hydraulic fracturing, led to a significant decrease in the drilling activity in Brent.

The US involvement in the Arab oil embargo during the 1970s prevented local oil companies from exporting their products to other countries. This ban was eventually lifted in 2015.

Although the price of crude oil is heavily traded on the New York Mercantile Exchange, most of the time, the focus of market participants is on the West Texas Intermediate. This contract has many derivatives and is closely followed by other futures traders. Exchange-traded funds and notes cannot provide investors with a wide range of access to the crude oil market.

4.   Plan For The Long Term

After the Second World War, the price of crude oil rose steadily and entered a narrow band until the 1970s, when the embargo caused a massive rally. It peaked in the late $20s and started a long decline that lasted until the start of the new millennium. In 2008, the price of crude oil reached an all-time high of $157.73.

After reaching a high of $157.73 in 2008, the price of crude oil started to decline and traded in a wide range between the upper $20s and the lower $55s. It eventually settled at around $55 at the end of 2017. Understanding long-term trends and behaviors can help investors make more informed decisions in this highly volatile market.

5.   Choose Where You Trade

The New York-based exchange offers over 10 million contracts monthly for the WTI Light Sweet crude oil futures contract. Although it has a relatively high risk, it is one of the most liquid contracts in the energy market. There are also several other energy-related products offered by the exchange, such as the Brent Oil Futures contract.

One of the most popular ways to play the crude oil market is through the United States Oil Fund. This security is able to track the price of crude oil by taking into account the different front month and long-dated contracts. It is vulnerable to contango, as the difference between the front month and the longer-dated contracts reduces the size of price extensions.

Besides being able to track the price of crude oil, sector funds and oil companies also offer investors exposure to various industries. Although most of the time, the price of crude oil is closely followed by the major oil companies, they can also diverge from the trends in the market for a long time. These counter-swings can occur whenever the equity markets are rising or falling and promote lockstep behavior between different sectors.

One of the most popular ways to play the price of crude oil is through a reserve currency. Since many nations rely heavily on energy resources, currencies tied to the energy sector can provide investors with long-term exposure to the commodity. For instance, the US dollar crosses with currencies such as the Mexican and Columbian pesos have been trading in the same direction as the price of crude oil for years. These are considered to be highly liquid and can easily scale up to new highs.

Crude Oil TradingWith Crystal Ball Markets

One of the most important factors that investors need to consider when it comes to trading in the energy and crude oil markets is the skill sets required to make consistent profits. Aside from the price movement, other factors such as energy demand and the long-term trend of the commodity must also be taken into account.

Much like any investment, you need a safe and reputed platform that allows you to diversify your investmentportfolio easily. Investors looking to gain exposure to crude oil markets through CFDs  are encouraged to give Crystal Ball Markets a try.

Apart from crude oil trading via CFDs, the platform allows traders to diversify their funds by investing in a range of highly lucrative instruments without the prohibitive capital requirements of energy futures trading. The company is a reputed online trading platform, allowing users to trade currencies, cryptocurrencies, indices, metals, and options. It provides historical data and technical analysis tools to help traders stay up-to-date on market trends and understand when to buy, hold, or sell, making it one of the best mobile trading apps. Visit their website or contact them for more information about their energy trading platform.