Crude Oil is known as Liquid Gold
Crude oil is a naturally occurring liquid found within the ground which consists of mostly of hydrogen and carbon. It's usually found underground but can also be found above ground in oil seeps or tar pits. Crude oil is used to produce fuel for cars, trucks, airplanes, boats and trains. It is also used for a wide variety of other commercial products including asphalt for roads, lubricants for all kinds of machines, plastics for toys, bottles, food wrap and computers.
Crude oil is believed to have been formed from very small plants and animals that lived in ancient seas and oceans a very long time ago. As these plants and animals die, they sink to the bottom of the sea where they mix with mud, sand, and clay.
This mixture of mud and organic (once-living) material is rich in hydrogen and carbon, the building blocks of crude oil. Year-after-year more mud and sediments are deposited on the sea floor. Over millions of years this layer of organic-rich mud becomes buried thousands of feet deep in the earth.
The temperature of the earth becomes hotter as you go deeper into the earth and the weight of all the mud and rocks above increase the pressure. This combination of increased temperature and pressure causes the organic material to change into crude oil. As the temperature increases the crude oil can be changed into natural gas.
Crude oil is an interesting subject. Trading crude oil with a good Crude Oil Trading System on the New York Mercantile Exchange can be very profitable but also has a high degree of risk too.
When you trade the oil futures markets, you’re betting oil prices will go up by a certain date, hopefully returning a profit to your portfolio. If you’re wrong, you’ve lost a costly wager but if you’re right you can make a fortune in the money machine that is crude oil.
Futures markets are meant to minimize losses associated with a commodity. For instance, a farmer that wants a fair price for his wheat crop finds an investor that’s willing to buy the harvest for that predetermined price. He is selling futures and the investor is buying futures. The buyer gives him a percentage of the agreed upon price before planting and when harvest comes, the investor gives him the rest. If wheat prices have dropped between planting and harvest, the farmer has the advantage and the investor loses. If prices increase, the farmer is paid what he thought was a fair price in the spring and the investor makes a better profit than he thought he would. Click-here for Trading Tip-of-the-Day.
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When you buy futures, no matter what the commodity, you are betting the commodity will sell at a certain price. If, at the end of the contract, the prices meet or exceed your projections you’ve made a tidy profit. If prices are below what you wagered on, you’ll take a loss. Each contract is for 1,000 barrels of oil so for every dollar of movement, your futures contract rises or falls by $1000.
Oil futures work the same way. The first step to successful trading in crude oil futures is to know everything possible about crude oil. For example, there are two main types of oil; they type with low viscosity and a high sulphur content is called “heavy sour” while that with high viscosity and low sulphur content is the “light sweet crude” you so often hear traders refer to. Naturally, the light sweet oil is more valuable because of all the products made from it-jet fuel, diesel fuel, gasoline, heating oil and other highly valued and necessary items.
The first thing any crude oil futures trader should do is to review charts to get historical price and volume information. This will help you get a sense of the best time to buy a contract as well as the best time to sell. NYMEX (New York Mercantile Exchange) provides a price chart with crude oil futures listed forward 9-years.
Because OPEC regulates much of the production of oil, you would not think the price would fluctuate so much but there are many factors that affect it. These are things a good futures trader watches for and uses to make his or her decisions. The Middle East isn’t the only place that produces oil; the United States, Russia, South America and other countries also have oil resources and you should take factors like weather, war, civil unrest and politics into account. The more limited oil production is, the higher the prices will rise. Hurricane Katrina, for example, affected oil prices. If relations with the United Arab Emirates are chilly, that might also dramatically impact prices.
The financial climate is another important thing to keep track of. Most of the world is in economic chaos right now; recessions mean unemployment, which results in people driving less and turning down their thermostats in the winter. Knowing when the economy is going to recover is a major key to determining demand for crude oil.
Right now is a volatile time for crude oil futures trading. Consumption is predicted to grow by 1% per year through 2030 because of demands from emerging market countries. When demand is high, prices are also high. A shortfall in exploration and production has plagued the industry in the past few years because of the “green” movement so supply is not as plentiful as it should be. Crude oil futures traders need to keep their eyes on the political climate as driven by environmentalists, who are at odds with the needs of a world that runs on oil. Recognizing when the practical will overcome the aesthetic is a key to realizing a profit by trading crude oil futures.
If a winter is particularly cold, there will be more demand for heating oil and with that demand will come higher oil prices. A good futures trader keeps an eye on the weather, looks at production numbers and crop projections. If a country’s gross national product starts to fall so will their demand for oil, resulting in higher prices for the oil. Keeping an eye on the world’s production is a valuable tool when dealing in oil futures.
Knowing when to sell crude oil futures can also result in a nice profit. You don’t have to hang onto your investment until the delivery date. If you have reason to believe that prices might fall you can sell your oil futures to another speculator that’s betting crude oil prices will go higher.
A mission of CrudeOilTradingSystem.com - "Crude Oil Trading System.com" oil futures trading club is to enable commodity traders to trade the crude oil futures market successfully. An additional goal is providing an Oil Trading System to all commodity futures traders who are members of our CrudeOilTradingSystem Traders Club. By becoming a paid club member you will receive a Certificate of Membership to The Crude Oil Trading System Club. By using your monthly fee club membership number you will be sent your oil trading system in the mail, supplied on a CD. Trade oil futures markets, including the popular NYMEX Energy & Crude oil markets (you may also try trading it on Gasoline, Heating Oil and other energy markets too) using your Crude-Oil-Trading-System for as long as desired.
You may want to later try a different oil trading system simply login to your club membership area, enter your unique club membership number and one more energy related trading system will be sent to you. There is no limit to how many times you can do this (beyond the number of energy-market-trading-systems we have available at any given time). As you wait for the CrudeOilTradingSystem.com site development we suggest you pay a visit to commodity futures trading traders site. In addition, you can also view Free Trading System. We are offering soon exclusive memberships to our new oil trading system club so please visit again...
Are Crude Oil & Natural Gas about to Explode?
Last weeks price action unfolded just as we expected. Money poured into stocks with the focus being on small cap, banks and technology stocks. The fact that these sectors are showing strength while utilities, health care and consumer staples lag is a good sign that investors are once again taking risks in the market.
Because investors and traders are bullish on the stock market again the money flow into the safe havens like precious metals and energy has decreased. I believe this is the reason stocks moved up last week while precious metals drifted lower.
Below are weekly charts (Natural Gas, Crude Oil and the Dollar) showing what I think is most likely to happen in the next few weeks and what should fuel the fire.
Natural Gas – Weekly Chart
Natural has been out of favor for the past 3 months with most of the selling happening recently as seen on the chart. In my opinion natural gas is over sold and about ready for a bounce.
The price of NG is now trading at a key support level but until the selling momentum stops and reverses back up I would steer clear of this commodity play. Natural gas is known for taking peoples money time and time again so trade this commodity very carefully.
Crude Oil – Weekly Chart
Crude oil has been trading in a channel for several months and is now testing the upper level. If we see the US Dollar drop in the coming weeks then I expect oil to surge higher along with natural gas. If oil breaks out then I expect to see the $90 level reached within a month.
US Dollar Index – Daily Chart
The US Dollar has put in a very nice bounce/rally since the low in November 2009. Last month the dollar finally reached a key resistance level of 81. I have been talking about this major resistance level since January as the Dollar would find it difficult to break above this level.
There is a strong chance we could see 78 reached which is the measured move down. If we get follow through selling next week then I would expect 78 to be reached within 1-2 weeks and over the next few months we could very well test the 2008 low of 72.50.
Natural Gas – It’s the Season
Natural gas’ seasonal price action shows that the price tends to strengthen between February and April. So with NG at support and we are in March you can guess what I’m thinking… higher prices are where the odds are pointing.
Crude Oil – It’s the Season
It’s the same story as natural gas above….
Higher prices seem to be where the best odds are.
Energy Trading Conclusion:
As a technical analyst the above charts are pointing to higher prices in the coming weeks for natural gas and crude oil, which is exciting for us all. BUT when things are this perfect looking we must be very cautious as the market has way to suck traders into these “perfect setups” and spit us out a couple days later for a nasty loss.
Understanding how the market moves is crucial for avoiding and/or minimizing losses when trades go against us. That is why I continue to wait for my signature low risk setup before putting any money to work.
My focus is to take the least amount of trades possible each year, only focusing on the best of the best setups. My low risk setups require risk downside risk to be under 3% for the investment of choice. and the broad market needs to be showing signs of strength as well. I use several different types of analysis to confirm if a setup has a high probability of winning and those which do are the trades I take along with my subscribers.
It is very important to wait for the market to confirm a move higher before taking a position when there is this type of setup. The market could go either way quickly and jumping the gun is not a safe bet.
If you would like to receive my Free Energy Trading Reports, please visit my website: GoldAndOilGuy.com