Crude oil is the world's most important commodity and one of its most volatile. It reacts to economic growth, wars, weather, OPEC+ decisions and a weekly inventory report, all of which makes it a challenging but rewarding market to trade.
WTI and Brent
| WTI | Brent | |
|---|---|---|
| Origin | US light sweet crude, delivered at Cushing, Oklahoma | North Sea crude |
| Main futures | NYMEX CL (1,000 barrels); micro MCL (100 barrels) | ICE Brent (1,000 barrels) |
| Tick | $0.01 = $10 on CL | $0.01 = $10 |
| Role | The US benchmark | The main global benchmark |
What moves oil
- Supply decisions: OPEC+ meetings and production quotas.
- Inventories: the US Energy Information Administration (EIA) publishes weekly crude stocks on Wednesdays at 10:30 New York time; the industry's API estimate comes out Tuesday afternoon. Surprises move price within seconds.
- Demand: global growth, especially in the US and China.
- Geopolitics: conflict in producing regions or shipping routes.
- The dollar: oil is priced in dollars, so a stronger dollar can weigh on it.
The futures curve
Oil futures trade for delivery in many future months. When later months are priced higher than the front month, the market is in contango, usually a sign of ample supply and storage costs. When the front month is priced higher, it's in backwardation, a sign of tight supply right now.
Key takeaways
- WTI is the US benchmark (NYMEX CL, 1,000 barrels, $10 per tick); Brent is the global benchmark.
- OPEC+ decisions, weekly EIA inventories, global demand, geopolitics and the dollar drive oil.
- Contango (later months dearer) suggests ample supply; backwardation suggests tight supply.
- Oil is very volatile around data and headlines; size small and know the calendar.