Basics of Crude Oil Trading in the UAE
Due to UAE's unique position within the world's economic and political systems, trading its crude oil production provides a tremendous potential for profit in practically all market scenarios. In addition, volatility in the energy industry in the UAE has grown dramatically in recent years, implying strong trends that can deliver consistent profits for short-term swing trades and long-term timing techniques.
Market players in the UAE frequently fail to capitalise on crude oil variations, either because they haven't mastered the specific characteristics of these markets or because they are ignorant of the hidden hazards that might eat into profits. Furthermore, not all energy-focused financial instruments are equal, with a selection of these assets more likely to yield favourable returns.
Main points to keep in mind before trading Crude Oil
- If you wish to play the oil markets, this vital commodity can give a highly liquid asset class from which to trade a variety of methods.
- First, select if you want to trade spot oil (and if so, which grade); a derivative instrument such as futures or options; or an exchange-traded product such as an ETN or ETF.
- Then, pay attention to the fundamentals of the oil market, including what drives supply and demand, as well as technical indications derived from charts.
Crude oil is impacted by global output as well as global economic success as it swings via supply and demand views. Oversupply and decreasing demand drive traders to sell crude oil markets, whilst growing demand and dropping or flat output urge traders to bid up crude oil prices.Tweets by OilandEnergy
Tight convergence between positive variables can result in tremendous uptrends, such as crude oil's ascent to $145.31 per barrel in July 2008.
When crude oil reacts to mixed conditions, price action tends to form tight trading ranges, with sideways movement lasting for years at a time.
The energy futures markets are dominated by professional traders and hedgers, with industry participants taking positions to offset physical exposure and hedge funds speculating on long- and short-term direction. Retail traders and investors have less clout in this market than they have in more emotive markets such as precious metals or high beta growth stocks.
When crude oil prices climb dramatically, retail becomes more influential, pulling capital from tiny players pulled into these markets by front-page headlines and table-pounding talking heads. Following waves of greed and terror may amplify underlying trend momentum, contributing to historic climaxes and crashes that print in extraordinarily large volume.
West Texas Intermediate Crude (WTI) and Brent Crude (Brent) are the two key markets for crude oil. WTI is derived from the Permian Basin and other local sources in the United States, whereas Brent is derived from over a dozen fields in the North Atlantic. The sulphur content and API gravity of these kinds varies, with lower values typically referred to as light sweet crude oil. Although WTI was more extensively traded in the global futures markets in 2022, Brent has proven a stronger indication of global price in recent years (after two years of Brent volume leadership).
For years, pricing between both grades remained within a close band, but that ended in 2010, when the two markets diverged substantially due to a quickly shifting supply versus demand situation. The surge in US oil production, driven by shale and fracking technologies, increased WTI output while reducing Brent drilling.
The Arab oil embargo in the 1970s exacerbated this separation by barring local oil businesses from selling their inventories in global markets. In 2015, the prohibition was lifted.
Many of CME Group's NYMEX futures contracts reflect the WTI benchmark, with the "CL" ticker garnering large daily trade.
The vast majority of futures traders may devote their whole attention to this instrument and its numerous derivatives. ETFs and ETNs provide equity access to crude oil, but their mathematical structure creates severe constraints owing to contango and backwardation.
WTI crude oil climbed after WWII, peaking in the mid $20s before falling into a narrow band until the 1970s embargo prompted a parabolic rally to $120. It peaked late in the decade and then began a tortuous descent, sinking into the teens as the century approached. Crude oil began a fresh and sustained upswing in 1999, reaching an all-time high of $157.73 per barrel in June 2008. The price subsequently fell into a large trading range between that level and the mid $20s, eventually stabilising at $55 at the end of 2017. It was selling at around $102 by the end of March 2022.
The NYMEX WTI Light Sweet Crude Oil futures contract (CL) trades more than ten million contracts each month, providing excellent liquidity. However, because to the 1,000 barrel contract unit and.01 per barrel minimum price volatility, it carries a rather significant risk.
There are dozens of additional energy-related products available on the NYMEX, the great majority of which attract professional speculators but few individual traders or investors.
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The most popular way to play crude oil through equities is through the U.S. Oil Fund, which has an average daily volume of more than 20 million shares. This product mimics WTI futures but is susceptible to contango because to price differences between front month and longer-dated contracts, which reduces the magnitude of price extensions.
Oil firms and sector funds provide a wide range of industry exposure, with production, exploration, and oil service activities giving distinct trends and possibilities. While the majority of corporations follow overall crude oil patterns, they can deviate dramatically for extended periods of time. These counter-swings frequently occur when equities markets are rising quickly, with rallies or selloffs creating cross-market correlation and encouraging lockstep behaviour across varied sectors.
Some of the biggest U.S. oil company funds are:
- SPDR Energy Select Sector Fund (XLE)
- SPDR S&P Oil & Gas Exploration and Production ETF (XOP)
- VanEck Vectors Oil Services ETF (OIH)
- iShares U.S. Energy ETF (IYE)
- Vanguard Energy ETF (VDE)
With many nations' economy heavily reliant on their energy resources, reserve currencies provide an ideal option to get long-term crude oil exposure. For years, the US dollar has tracked crude oil through crosses with the Colombian and Mexican pesos, denoted by the tickers USD/COP and USD/MXN, respectively, providing speculators with highly liquid and readily scalable access to uptrends and downtrends. Bearish crude oil positions necessitate the purchase of these crosses, whilst bullish crude oil positions necessitate the sale of these crosses.
To produce regular gains in the crude oil and energy markets, special skill sets are required. Market participants interested in trading crude oil futures and derivatives must understand what drives the commodity, the nature of the dominant crowd, long-term price history, and physical variances between various grades.
Sourced from: Investopedia
Learn more about online trading brokers for UAE citizens and residents.
Best Online Brokers for trading Forex, Bitcoin, CFDs and Stocks in the UAE
Here is a list of top online brokers to open an account for trading Forex, Bitcoin, CFDs and Stocks in the UAE. These brokers have above-average reviews on sites like Reddit, Quora and Trustpilot; and are totally legit, safe and trustworthy for UAE citizens and residents.
The brokers listed on this webpage accept clients from within the United Arab Emirates. Most of these companies provide an online trading platform for fiat currencies (such as Pound Sterling, the Euro, the US dollar, Japanese Yen etc.), buying and selling of cryptocurrencies (for example Bitcoin, Ethereum, Tether, XRP etc.), stocks (this includes listings on Abu Dhabi Securities Exchange, Borse Dubai, Dubai Mercantile Exchange, Dubai Financial Market and NASDAQ Dubai), CFDs (Apple, Microsoft, Amazon, Google, Tesla etc.), UAE government and corporate bonds, and short-term to long-term fixed income securities.
- Olymp Trade - People simply love this one (Olymp Trade Review)
- Binance - World's largest cryptocurrency e-wallet and exchange that also has an online trading platform, where their members can invest or trade in virtually hundreds of cryptocurrencies and new tokens. (Binance Review)
- IG Markets UAE - UK broker located at Tower 2, Level 27, Al Fattan Currency House, DIFC. (IG Markets UAE Review)
- City Index Middle East - London-city broker with a branch in the UAE. (City Index Middle East Review)
- eToro - Social trading platform, but much better options are available out there. (eToro Review)
- Swissquote - It's a Swiss bank that offers an online trading platform for forex and CFD trading. (Swissquote Review)
- easyMarkets - Israeli brand that is big all over. (easyMarkets Review)
- OANDA - American broker that is now spreading its wings. (OANDA Review)
- Forex.com - Google ranks them in the top 10 for the term "forex". (Forex.com Review)
- Plus500 - UK brand that has its own platform, OK for CFDs, with mediocre reviews. (Plus500 Review)
- AvaTrade - Regulated by ADGM's Financial Services Regulatory Authority (FSRA) in Abu Dhabi. (AvaTrade Review)
- FXCM.com - Oldest brand when it comes to retail online forex trading. (FXCM.com Review)
- Mashreq Neo - An online trading platform provided by Mashreq Bank. (Mashreq Neo Review)
- ForexTime (FXTM) - Owned by Andrey Dashin from the Alpari broker fame. (ForexTime FXTM Review)
- Noor Capital - Licensed and Regulated by the UAE Central Bank and SCA. (Noor Capital Review)
- XM.com - XM broker is big in Africa and South East Asia, and now promoting themselves hard in the UAE. (XM.com Review)
- Saxo Bank - Danish Investment Bank with a long history of catering for premium forex investors. It also provides crypto trading facility. (Saxo Bank Review)
- Pepperstone - Originally Australian, but licensed locally by Dubai Financial Services Authority. (Pepperstone Review)
- ADSS - Based out of Abu Dhabi and regulated by the Central Bank of the United Arab Emirates. (ADSS Review)
- CMC Markets - UK-based broker that is popular among CFD traders. (CMC Markets Review)
- Orient Finance - Local online-trading broker that caters to novice traders looking to invest in the foreign exchange markets. (Orient Finance Review)
- Alfa Financial - Their office is located at City Centre Deira on Port Saeed Road; and generally tends to attract investors within Dubai. (Alfa Financial Review)
- One Financial Markets - Local forex broker with an office at Dubai International Financial Centre at Index Tower. (One Financial Markets Review)
- Amana Capital - A broker located at Central Park Towers, Dubai International Financial Center. (Amana Capital Review)
- ETX Capital - UK broker that has a decent reputation among Arab investors. (ETX Capital Review)
- Century Financial - Old online-trading broker with an office at Level 6, Building 4, Emaar Square, Downtown Dubai. (Century Financial Review)
- IFCM UAE - Nothing special about IFC Markets, but it does have a dedicated .AE website for UAE clients. (IFCM UAE Review)
- EARNEX - This one is present at Jumeirah Lakes Towers and is licensed by the SCA. (EARNEX Review)
- Interactive Brokers - American online-trading broker that is expanding into Asian and Arab markets nowadays. (Interactive Brokers Review)
- Rakuten Securities - Japanese broker that usually looks out for large institutional investors. (Rakuten Securities Review)
- Dukascopy Bank SA - Swiss bank that offers online forex trading on its own proprietary platform. (Dukascopy Bank SA Review)
- Gulfbrokers ae - Dubai Multi Commodities Centre (DMCC) regulates this broker, but there nothing extraordinary about this brand. (Gulfbrokers AE Review)
- IQ Option - It's a below-average broker with no Dubai office, but does have a toll-free virtual number for UAE: 800 032 0891 -> No Arabic, English only. (IQ Option Review)
Reviewed by Arpita Singh
Arpita Singh is the main writer at ForexBroker.ae. As a senior investment professional with 10+ years of experience working at top-tier Private Equity and Sovereign Wealth Fund; she is also responsible for fact-checking concepts, reviews, and related details about brokers and exchanges listed on this website. Full Bio.