How to Buy Oil Futures

Crude oil has been a vital commodity in the global economy for more than a century and oil futures offer an avenue for speculating on its price. 

But before diving into the market, it’s important to understand market conditions and other influencing factors. 

Ongoing geopolitical tensions, particularly involving the United States, Iran and Russia-Ukraine, continue to create uncertainty in the oil market, impacting supply and price volatility. Attacks on oil infrastructure in regions like Yemen and Colombia also contribute to instability. 

Escalating trade tensions and tariffs between the U.S. and China threaten global economic growth, which could affect the oil demand. 

How to Buy Oil Futures

• Step 1: Get Familiar with Oil Market Fundamentals
• Step 2: Develop a Plan of Action
• Step 3: Pick a Broker
• Step 4: Open an Account and Go Live

Get Familiar with Oil Market Fundamentals

Understanding the interplay of factors influencing the price of crude oil and its related products is critical. The oil market operates based on the principles of supply and demand. When oil supply exceeds demand, prices tend to fall, and when the demand for oil outpaces supply, prices generally rise. 

Several factors influence the dynamics of supply and demand. 

On the supply side, production levels of major oil-producing countries and regions are key factors. The Organization of Petroleum Exporting Countries (OPEC) plays a significant role – its members control a substantial portion of global oil reserves and production and their decisions on production quotas significantly impact prices. 

Non-OPEC producing countries like the United States, Russia and Canada also contribute to the global supply and geopolitical events can disrupt supply and lead to price volatility. 

Oil demand is driven by economic activity because oil is a crucial energy source for transportation, industrial production and other sectors. Economic growth typically leads to increased demand for oil, while slowdowns or recessions tend to reduce it. 

Demand fluctuates with the seasons: Increased travel during summer or higher heating oil consumption in winter months can impact demand. The increasing adoption of alternative energy sources and energy efficiency improvements can also impact the oil demand. 

Develop a Plan of Action

First, define what you want to achieve through trading oil futures. Are you after short-term profits, medium-term gains or long-term investments? Your goals will influence your trading strategies and time horizon. 

Because oil futures are volatile, you should assess your risk tolerance and determine how much money you will lose on each trade. You also should determine how much time you can spend monitoring the markets and executing trades. If you can’t monitor the market regularly, you should enter stop-loss orders in case you take a position on a view that turns out to be wrong. 

Regularly review your trading plan and performance to identify what works and needs improvement. Adjust your plan based on changing market conditions and your understanding of the oil market. 

Pick a Broker

Picking the right futures broker is an important first step for anyone looking to trade oil futures. The broker you choose provides the platform, tools and market access for executing your trading plan. 

First, evaluate the trading platform that the broker offers. It should be user-friendly, reliable and have the charting tools, technical indicators and order entry capabilities for analyzing the oil market and executing trades efficiently. Consider whether the platform is available on desktop, web and mobile devices to suit your trading style. 

Also consider commissions and fees. Brokers have different fee structures, including per-contract commissions, margin rates and fees for data feeds, platform use or withdrawals. Don’t focus just on the lowest commissions – the quality of the platform, customer support and other services also are important considerations. 

Ensure the broker is regulated by a reputable authority such as the Commodity Futures Trading Commission (CFTC) and has a track record of reliability and customer service. 

Open an Account and Go Live

Once you’ve created your trading plan, tested it in a demo environment and selected a broker, the next step is to fund your account and transition to live trading. 

Remember that oil futures are known for their volatility, which requires preparedness for quick market fluctuations. Closely monitor international news and geopolitical developments such as wars, revolutions or elections in oil-producing nations because they can substantially influence oil prices. 

Buying Oil Futures

When you buy oil futures, you’re entering a contract to purchase a specific quantity of crude oil at a predetermined price on a future date. It’s a way to speculate on the future price of oil by betting that the price will increase between the time you buy the contract and its expiration date. 

The price of futures contracts is influenced by the interplay of supply and demand factors, geopolitical events, economic indicators and market sentiment. Projection levels of major oil-producing nations, inventory reports and technological advancements in extraction affect supply. 

Global economic growth, seasonal patterns and adoption of alternative energy sources drive demand. Geopolitical stability, natural disasters and policy changes also create price volatility. 

The oil market is experiencing volatility due to geopolitical tensions, trade disputes and supply-side dynamics. Escalating trade tensions and tariffs between the U.S. and China could impact global economic growth, affecting oil demand. New U.S. sanctions targeting Iran’s oil exports are tightening global supply and increasing prices. 

If you’re considering buying oil futures, staying updated on the rapidly evolving market conditions and understanding the risks associated with futures trading is important. 

Frequently Asked Questions