The price of oil is on the way up again. It is currently sitting around $119 per barrel (Brent Crude) having jumped on news that Saudi Arabia failed to convince OPEC members to raise production targets. For commodity spread betters, the oil price represents an opportunity to make money. Here are three things you need to do first.
First off, get to know your market. There are many factors that affect supply and demand and therefore the price of oil. Politics is one of the big ones: the OPEC cartel of oil-producing countries can have a big impact on the price by altering its commitment to supply oil. So anyone spread betting this market needs to be on top of the timing and likely impact of OPEC’s announcements.
Then you need to figure out what product you are going to spread bet. In the oil market, two types of oil attract a lot of speculative interest – there’s Brent crude and West Texas Intermediate (WTI). And although they are both quoted in US dollars, they are not the same.
While Brent is trading at $119, WTI trades nearer $101. The gap, or spread, is something some spread betters trade in its own right. News that affects Brent crude prices does not always have the same impact on WTI as they are different products and so the supply/demand dynamic is different. So make sure before you start spread betting you have decided which contract you will bet on. You may even feel adventurous enough to play the spread itself via a pairs trade.
Finally understand how ticks, pips and bet sizes work in this market. Usually if you are betting on Brent crude for example you bet a number of pounds per $0.01 movement in the price. So if you bet at £10 per ‘point’ or ‘tick’ and the price moves by five cents, or $0.05, you have made or lost £50.
And don’t forget that oil prices can be volatile – the price has been close to $150 a barrel in recent years. So use stop losses to keep you out of too much trouble if a bet goes wrong.