How to Trade Oil Amid Energy Price Surge

March 09, 2022 14:20

Supply constraints in energy markets have caused commodities such as natural gas and wheat to hit fresh record highs while oil prices are in touching distance of all-time highs not seen since before the 2008 financial recession. 

In this week's trade idea example, we go through how to trade oil amid the energy price surge which you can use as a basis to build your own trade idea. 

Commodity CFD: WTI Crude Oil CFD
Trade.MT4 / Trade.MT5 Account: WTI 
Date of Idea: 8 March 2022 
Time Line: 1 – 2 weeks 
Entry Level: 131.50 
Target Level: 156.50 
Stop Loss Levels: 106.50
Position Size: Max 2%
Risk: High

The Trade.MT4 and Trade.MT5 account allows you to speculate on the price direction of commodities using CFDs. This means you can trade long and short to potentially profit from rising and falling prices. Learn more about CFDs in this How to Trade CFDs article. 

All trading is high risk and you can lose more than you risk on a trade. Never invest more than you can afford to lose as some trades will lose and some trades will win. Start small to understand your own risk tolerance levels or practice on a demo account first to build your knowledge before investing. 

Why Trade Oil Prices Right Now? 

Analysts from investment banks such as JP Morgan are forecasting the potential for oil to reach $185 per barrel if the Russian supply continues to be disrupted. From the start of this month, oil prices surged more than 35% to just above $130 per barrel.  

Russia is one of the largest oil producers in the world with a 12% market share. Nearly half of all Russia’s oil goes to Europe with China being the single largest importer of Russian oil. So far, countries such as Germany have been reluctant to ban energy exports from Russia.  

However, governments are already seeking ways to wean off Russian oil this year, with US President Joe Biden trying to secure replacement barrels from Venezuela and Saudi Arabia. This situation is likely to keep oil prices elevated as US Secretary of State Antony Blinken stated that they are considering banning Russian oil and gas imports.  

It’s worthwhile remembering that energy markets are extremely volatile in the current climate. This can be good news for traders as it can mean bigger price swings. However, proper risk management techniques are very important in navigating volatility safely. Admirals provide a range of volatility protection tools for you to use.  

Crude Oil Prices Have the All-Time High in Sight 

In the long-term, monthly chart of WTI (West Texas Intermediate) Crude Oil shown below, it’s clear to see that the price of oil is approaching the all-time high price level recorded in July 2008 (the black horizontal line).  

Source: Admirals MetaTrader 5, WTI, Monthly - Data range: from 1 Jan 2007 to 8 Mar 2022, performed on 8 Mar 2022 at 7:00 am GMT. Please note: Past performance is not a reliable indicator of future results. 

Below is the price chart of oil on the 4-hour chart. Currently, it shows the recent uptrend that has developed. The blue, red and green lines are exponential moving averages (EMAs) which are used to the average price of a market over a fixed number of bars. These are used to help identify and confirm the trend.  

Source: Admirals MetaTrader 5, WTI, H4 - Data range: from 20 Jan 2022 to 8 Mar 2022, performed on 8 Mar 2022 at 7:00 am GMT. Please note: Past performance is not a reliable indicator of future results. 

Currently, the 20 EMA is above the 50 EMA which is above the 100 EMA. This suggests that buyers are still in control of the market with the average price of the market moving higher. There are a variety of different technical analysis tools traders will use to help in their decision-making process.  

You can learn more about technical indicators in the Admiral Forex Indicators library and more about Oil Trading Strategies.  

An Example Trading Idea for the WTI Crude Oil CFD 

Based on the analysis above, an example trading idea for the WTI Crude Oil CFD could be as follows:  

  • Buy the market on a break of the recent swing high at 131.50. 
  • Place a protective stop loss on a break of the recent swing low at 106.50. 
  • Place a target of a 1:1 reward to risk ratio at 156.50. 
  • Keep your risk small at a maximum of 2% of your total account.   
  • Time Line = 1 – 2 weeks.  
  • If you traded with a position size of 0.1 lots, then:  
    • If your target is reached = $250.00 profit    
    • If your stop loss is reached = -$250.00 loss 

It’s wise to remember that the price of oil is unlikely to go up in a straight line and it may even go much further down before it rises, especially considering the volatility of the markets at the current time.  

Therefore, be sure to exercise good risk management which is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade and the risks involved.  

You can do this using the Admirals Trading Calculator for the Trade.MT4 account, as shown below: 

Source: Admirals Trading Calculator 

Another factor to consider is the cost of trading CFDs. These include: 

  • Spread. This is the difference between the buy price and the sell price of an instrument.  
    • Admirals’ typical spread on WTI Crude Oil is 0.03 points. 
  • Commission. This is the cost to make a buy and sell transaction.  
    • From the Admirals Trade.MT4 account there are ZERO commissions to pay to buy or sell commodity CFDs.  
  • Swaps. This is the overnight fee to roll your position over to the next day.  
    • The current swap fee for the WTI Crude Oil CFD from the Trade.MT4 account is –0.00775 for long positions and –0.03553 for short positions.  

You can find more details from the Admirals Contract Specification page.  

How to Trade WTI Crude Oil CFDs in 4 Steps 

You can trade WTI Crude Oil CFDs and other commodity markets from the Trade.MT4 or Trade.MT5 accounts.    

  1. Open an account with Admirals to access the Trader’s Room.   
  2. Click on Trade on one of your live or demo accounts to open the web platform.   
  3. Search for WTI at the bottom of the Market Watch window and drag the symbol onto the chart.   
  4. Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.   

Source: Admirals Web Trader. Past performance is not a reliable indicator of future results, or future performance. 

Click on the banner below to trade oil today! ▼▼▼ 

Do You See Oil Moving Differently?  

Remember that all analytics and trading ideas are based on the personal view and experience of the author.  

If you believe there is a higher chance that oil prices will move lower, then you can also trade short from a CFD (Contracts for Difference) trading account which Admirals also provide.  

The Trade.MT5 and Trade.MT4 account allows you to speculate on the price direction of commodities using CFDs.  

This means you can trade long and short to potentially profit from rising and falling commodity prices. Learn more about CFDs in this How to Trade CFDs article. 

Other Ways to Trade Oil Prices 

Another way to trade the potential rise in oil prices is to trade oil stocks. Oil companies who are involved in the extraction, refining and distribution of oil are likely to benefit from a rise in oil prices. However, oil stocks are also extremely volatile in the current climate so be sure to exercise good risk management techniques.

Just last week legendary investor Warren Buffett announced a $4.5 billion stake in energy company Occidental Petroleum. The stock price is already up 70% this year.  

Admirals provide a wide range of oil stocks you can trade and invest in. Learn more in the ‘Best Oil Stocks to Watch in 2022’ article.  

Trade with a Broker Who Puts Your Security First! 

  • Additional client fund security, up to $100,000 for Admiral Markets AS Jordan Ltd clients. 
  • Client funds protection insurance up to €100,000 for Admirals Markets Cyprus Ltd clients. 
  • Negative balance protection to protect against adverse movements in the market causing your account to go below zero - for clients trading with Admiral Markets Cyprus Ltd.  
  • Volatility Protection. Limit the maximum price slippage and losses on both market and stop orders.  
  • Advanced technical features for your personal risk management (partial stops, etc.) 
  • Trade long and short using CFDs and potentially profit from rising and falling markets.  

Advanced Trading Webinars

Discover the latest trading trends, get actionable strategies and enjoy complimentary tools.

 

INFORMATION ABOUT ANALYTICAL MATERIALS:   

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals’ investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:   

  • This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.    
  • Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content. 
  • With a view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for the prevention and management of conflicts of interest. 
  • The Analysis is prepared by an independent analyst, Jitan Solanki (analyst), (hereinafter “Author”) based on their personal estimations.    
  • Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.    
  • Any kind of past or modelled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed. 
  • Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved. 
Jitanchandra Solanki
Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.