WTI crude oil is one of the three major benchmark crude oils in the world, which usually affects the prices of crude oil products in North America such as Canada and the United States. Of course, many investors will also make money by investing in WTI crude oil, but many new investors do not know much about WTI crude oil.
So we wrote an analysis report to tell you how WTI crude oil is going this year, will it go up or down in the future? This article deciphers the big and small things you must know about investing in WTI crude oil.
What is WTI Crude Oil?
WTI crude oil, also known as West Texas Intermediate or New York Light, is produced in the interior of Texas and is one of the highest quality crude oils in the world. Transportation is dominant and radiation is limited, so it is the benchmark oil in North America.
What is benchmark oil? The significance of the benchmark is to provide a price reference for the double release of crude oil. We usually say that the oil price has risen, and it is the price of the benchmark oil.
The following figure shows the radiation range of the three major benchmark crude oils in the world. In addition to the North American WTI crude oil listed on the New York Mercantile Exchange, the widest radiation range is the British North Sea Brent crude oil listed on the London International Petroleum Exchange, which benefits from shipping, and Singapore. Dubai Oman Crude Oil (Dubai/Oman), which is listed on the International Financial Exchange and has certain influence in the Middle East and Asia.
Image credit: IntercontinentalExchange (ICE)
Is WTI Crude Oil a Good Investment Product?
For crude oil, ordinary consumers may only care about oil prices, but in the eyes of investors, crude oil is a product that enriches their investment portfolios. The birth of crude oil investment products can be traced back to the risk hedging of crude oil producers in the last world. Since then, crude oil products have been one of the most popular investment products in the investment market due to their high volatility and high returns.
Investing in WTI crude oil is different from the stock market, it is a commodity-type investment product. There are three main investment methods, the first one is spot trading, but due to the difficulty in storing and transporting WTI crude oil, such a proportion is very small. The second is futures trading, which is also more risky because of the forced liquidation on the delivery day. The last one is CFD trading, which is similar to futures, but is more flexible and cheaper than crude oil futures, so it is more popular.
The price of WTI crude oil fluctuates frequently, so it is a product that traders or investors like to trade. Of course, different people will have different opinions. We believe that investing in crude oil at the right time can bring you far more returns than the stock market.
Analysis of the historical trend of WTI crude oil price
Image source: tradingeconomics
The relationship between supply and demand is the absolute core that affects the price of commodities, and there are many factors affecting the relationship between supply and demand of crude oil, which also creates the reason why the price of original products fluctuates frequently. The picture above is a ten-year price chart of WTI crude oil, which has two huge price swings.
The cumulative decline of WTI crude oil from June to December 2014 was 44%, which was due to the increase in the production efficiency of "shale oil" in the United States and the increase in supply, while the economic slowdown in oil importing countries reduced demand. At the same time, the aggressive policy of the Organization of the Petroleum Exporting Countries (OPEC) on oil prices has also caused a rapid decline in oil prices.
In 2020, there was another price crash, and even the closing price fell below $-37.63/barrel on April 20, 2022, which is the first negative asset price in history. This is due to the fact that institutions with spot delivery capabilities cannot carry out physical delivery due to storage and storage, which has also led to many long investors to liquidate their positions and leave the market, while short sellers make a lot of money.
Then in 2022, WTI crude oil will rise again due to the Uzbek-Soviet war. As of the time of publication, the price of WTI crude oil is: $89.852.
Analysis of the price trend of WTI crude oil in 2022
Image source: CM Trade
Oil prices have risen to their highest level since 2008 this year, with benchmark West Texas Intermediate (WTI) crude jumping from an average of $71 a barrel in December 2021 to $114.84 a barrel in June 2022 due to geoeconomics .
At the end of the first quarter of 2022, demand for crude oil increased as governments began to ease strict restrictions, allowing economies to reopen and travel to increase. Meanwhile, global energy markets may face the biggest supply crisis in decades as oil supplies from Russia, the world's largest oil exporter, are disrupted because of the war, pushing up the price of WTI crude.
By the second quarter, WTI crude fell to around $100 as sanctions blocking all Russian oil officially took effect, only to rebound for a few short weeks before falling below $100 in early July.
Prediction of WTI crude oil price trend
Image source: eia.gov
According to the short-term energy outlook report issued by the U.S. Energy Information Regulatory Commission, they combine factors such as global oil demand and U.S. crude oil production and the decline in Russian crude oil supply, and believe that the price trend of WTI crude oil will gradually decline in the future.
If in the second half of this year, the geopolitical crisis contacts no new events, according to the current supply and demand relationship, we believe that WTI crude oil will drop to 60 US dollars / barrel in stages this year. Of course, the long-term forecast is that crude oil prices will rise as global crude oil stocks decline.
At the same time, unstable factors still exist, which requires paying attention to news, reading market analysis and keeping abreast of major global events in order to judge new price trends.
The reasons that affect the price trend of WTI crude oil
There are many reasons that affect the WTI cause price. For example, the events affecting the cause price in 2022 include: Russia's invasion of Ukraine, the decline of US oil supply capacity due to natural events such as hurricanes, OPEC's decision to limit member countries' crude oil production, etc.
And before discussing what we believe to be before investing in WTI crude oil, there are some price factors that need attention.
OPEC members control nearly 80 percent of the world's oil reserves. The organization's main function is to set production levels to meet global demand, but it can also increase or decrease output to influence the price of world crude.
Natural disasters in crude oil producing areas
Because oil is often extracted in the open, it is vulnerable to inclement weather such as injection floods, hurricanes, etc., which can reduce oil production capacity.
unstable political landscape
From a global perspective, war is always a major reason for the rise in crude prices, especially in the Middle East and Eastern Europe, which have a large number of oil fields, political turmoil will inevitably lead to fluctuations in oil prices.
Production costs and energy storage
In February 2020, U.S. production averaged about 12.7 million barrels of oil per day, and average production, while volatile, is likely to trend downward. As such, the continued weekly declines put upward pressure on oil prices. In order not to miss the opportunity of shorting crude oil in 2014, the energy storage of delivery institutions is also a key concern.
Ways to Invest in WTI Crude Oil
There are several ways to invest in oil, and most do not require owning any physical oil yourself. You can invest in WTI crude oil through spot, futures, and CFD contracts for difference.
Spot investment can be said to be one-handed and one-handed delivery. If investors have sufficient financial resources and sufficient storage facilities, investing in spot is also a feasible way.
Invest in futures
For most people, crude oil futures are the way that many people choose, but there is a delivery time for futures products, and it is easy to cause liquidation and forced delivery, and the risk is often huge.
Invest in CFDs
CFDs are similar to futures, but there is no delivery date, which reduces risks, and there is no high threshold for spot investment, so it is more suitable for ordinary investors with lower risk tolerance to invest.
How to invest in WTI Crude Oil CFDs at CM Trade?
We will give an example to let you understand all the process of trading WTI crude oil at CM Trade. In this example, assuming you are trading a barrel of WTI crude oil at $50, an oil CFD would also be worth $50.
Choose your tool
CM Trade provides two trading tools, one is MT4 on the desktop. As long as investors register an account on the official website of CM Trade and download MT4, CM Trade will send the account password through SMS or email for investors to use MT4 for free.
The other is to download the CM Trade CFD trading software, which will allow investors to complete market tracking more quickly.
Choose your deal size
Leverage allows you to buy up to 200 times WTI oil with your investment. So with a $200 investment and 200:1 leverage, you could buy $40,000 worth of WTI oil, or 800 contracts in this case. Calculation: $200 (investment) x 200 (leverage) = $40,000
When you trade WTI crude oil prices online, you can open a position even if you think the price will fall. If you think the price will go up, make a "buy" trade, if you think the price will go down, make a "sell" trade.
Close your WTI oil trade and collect your profits
If you chose to sell, now, assuming the price of a barrel of oil (a single contract) has fallen to $49, you decide to close your "sell" trade. For 800 contracts, this is a $1 change, which means investing $200 can earn you $800 in profit. The formula is: 800 (WTI contract book) × $1 (difference) = $800 (profit).
It is so simple to trade WTI crude oil on CM Trade. Now the price of crude oil is greatly affected by the factors of war. Fluctuations in a short period of time will create many investment opportunities. If you want to invest in crude oil, CM Trade will be your best choice. choose.