Early in the year, Russia and Middle East producers agreed to oversupply the world with the crucial commodity in a bid to make American oil too expensive.
It’s all part of a complicated global chessboard to maintain or increase their dwindling revenues.
For many years, the United States of America has been the world’s largest buyer of foreign oil. Although they have their own reserves, their production capacity was unable fill that demand.
They instead bought oil from the Middle East and other OPEC nations.
Russia is another big oil producer. For many years, it has been exporting its oil to Europe, mainly Netherlands and Germany. China has however in recent years taken the top spot.
With Russia and Middle East’s respective markets safe and secure, the prices rose for many years, by a lot.
The break even price for Russia or Saudi Arabia is below $30. However the break even price for US fracking is over $50.
That has not been a problem for many years since the price of oil has been above that.
But as with any business, if there is money to be made, more players will come in.
This is what has been happening in the US in recent years. More fracking operations were started, reaching a point where the US was producing nearly all the oil it needed.
President Trump often claims that he made the US energy-independent, although that is not entirely true.
Now, when the US (which is the world’s largest oil consuming country) no longer needed as much Middle East imports as it needed before, the balance of the global trade was interupted.
A few months ago, it is believed that the Middle East and Russia agreed that the old order had to be restored, and that meant kicking the Americans out of the oil production business.
The best way to do that was to let the price go on a free fall that it becomes unprofitable for US frackers.
It was supposed to happen gradually but then the pandemic struck.
What happened was an unprecedented fall in global oil prices.
Why Oil Reached Negative Prices
It literally means buyers were being paid to have the oil. But obviously not retail buyers like you and me.
The stage for such dramatic prices was set the moment Russia and OPEC opened all their taps to drown the Americans.
When the Coronavirus pandemic struck, prices were already on their way down. It only accelerated the process and quite dramatically at that.
Global demand all but dried up when planes were grounded and stay at home orders issued in many countries.
Nobody knew how long the lockdowns would last and supply was not halted immediately.
Towards the end of April when the May ‘futures contracts’ were expiring and needed to be disposed, storage tanks and tankers were full. Nobody wanted the oil because there was nowhere to store it.
And that’s how producers started paying anyone who could get it off their hands.
How To Take Advantage of Fluctuating Oil Prices
Whenever a commodity has frequent swings in prices, there is money to be made. Anyone who jumped on board the oil market at its lowest price is looking to make a huge profit.
To put that in context, for several weeks in April, the price of oil was below $20 a barrel. Right now it is approaching $40.
Within a matter of weeks, anyone had the chance of doubling, tripling or even quadrupling their money. This is virtually unheard of in other kinds of markets like the stock market.
An annual return of 10% in the stock market is considered average. 15% and you are among the best traders on Wall Street.
And here we’re talking of a return of nearly 300% in a matter of days.
Fortunes are built of this. You can do it the safe way by taking home small profits every year, or you can make one good move and change your life forever.
But let’s face it. If you’re reading this, you probably are in no capacity to buy oil by the barrels. This is a preserve of large multinational corporations with huge floating tankers in the high seas.
What you can do from the comfort of your home or office is trade in the futures contracts. In simple terms, this means you will never touch or see the commodity, but rather take advantage of its price fluctuations.
How do you do this?
I’m glad you asked. There are various online platforms that enable this, but for the purpose of this article, we’ll focus on one. Etoro.
How To Trade in Oil on Etoro
For anyone seeking to invest their money in the stock market or commodities, it is the best thing since sliced bread.
Etoro is by no means the only platform to offer such services, but it is the one I’ve found most user friendly.
How to start trading on Etoro
1. You’ll obviously need an account on the platform. Sign Up with your email or Facebook account. It’s a really straightforward process.
2. You may need to verify your identity and residential address. Any government issued document like an ID or Passport will work.
For residential address, any utility bill or tax document that matches the address you stated will work.
3. Once you have your account set up, you can start trading.
4. One of the best features of Etoro is the option to create a virtual portfolio. This one will help you horn your skills without risking real money.
You will be given some virtual funds, which you can trade with real time data. These skills are particularly helpful if you want to become a day trader rather than a long-term investor.
5. If you want to invest your money and forget it for several months, you can proceed right away.
6. Of course you need to put in the money first. Etoro offers several ways to make your deposit on their platform, depending on which country you are in.
We’re going to list the options available to South Africans.
How to deposit on Etoro in South Africa
1. PayPal – Maximum deposit of $10,000 (If you don’t have a Neteller account you can create one on Paypal.com)
2. Credit/debit cards – Maximum deposit of $40,000
3. Neteller – Maximum deposit of $10,000 (If you don’t have a Neteller account you can create one on Neteller.com)
4. Skrill – Maximum deposit of $10,000 (If you don’t have a Neteller account you can create one on Skrill.com)
5. Wire transfer – No maximum deposit
All deposit methods reflect on your Etoro account instantly, except wire transfer which takes 4-7 days.
* Your money is available for withdrawal from all the above any time of day.
* Unverified accounts are limited to a total deposit amount of $2,250.
Now with your deposit made, you are all set to start trading in oil.
On your Etoro Dashboard, click on the Trade Markets option, which will open up a variety of new options.
At the top of the page, you’ll see options like Stock, Indices, Crypto, Commodities, Currencies. In this particular instance, you are interested in Commodities.
Click it and you’ll be presented with all the commodities available for trading.
Top of the list are Oil, Gold, Silver, Copper and Natural Gas.
Choose oil and the rest of the process is easy.
You’ll be presented with an option to Buy or Sell.
‘Sell’ will come into play when you’re liquidating your portfolio later, hopefully at a healthy profit.
‘Buy’ is what we’re interested in right now. A pop up will present you with the minimum and maximum amount you can place, based on the funds available in your account.
Once you are comfortable, click buy and let the waiting game begin.
Leveraging on Etoro
It is presented on your trade dashboard as a multiplier.
Etoro themselves do a good job explaining this concept.
“The best way to understand leverage is through an example of how it affects your profit or loss potential. If you trade with no leverage at all and invest $1,000, for every 1% move in the market you can gain or lose $10, which equals 1% of $1,000.
In comparison, if you were to invest the same $1,000 and trade using x10 leverage, the dollar value of your position would be equal to $10,000.
1% of $10,000 equals $100, so for every 1% move in the market you can gain or lose $100.”
In every trade, you can decide whether you want to use any leverage or no leverage at all.
This is a very risky tool and should be used very carefully. The profits can be astronomical but the losses are just as big. If you have doubt, choose a leverage of X1 (no leverage) and let your actual investment work for you.
How to make a money trading in oil
The fact of the matter is you need certain skills to turn a profit, even on Etoro.
In the oil market, you need to be constantly informed of global events that might influence the price. Follow every relevant piece of news from the Middle East and update yourself on any policies or decisions that can cause a dip or a rise in the price.
Monitor price movements and the state of your portfolio.
Do this regularly and you’ll be almost guaranteed to turn a profit.
Here are all the resources to help you start trading in oil today.
Join Etoro – https://www.etoro.com/
Join Skrill – https://www.skrill.com/en/
Join Neteller – https://www.neteller.com
Join PayPal – https://www.paypal.com/