Everyday more than 100 million barrels of crude oil and natural gas are being sold. As developing countries continue to increase their horizon, their demand for crude oil will increase to cater to the growing population and off shooting economy. To solve this issue, they would need to practice conservative measures while also thinking of a switch to alternative energy forms.
The trading of crude oil usually happens at various points on the petroleum chain but crude sales occurs at the liquid market or point of production. Remember that crude oil is bought and sold through different contracts and its purpose is to transfer possession of the commodity to the buyer and handle the financial risks involved in the commodity trade.
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Physical and financial management markets
These markets are the controlling markets for crude oil over the years and they have developed under different circumstances over the last century. Traders which include oil companies and financial institutions can use these markets to manage oil prices or transfer possession of oil rights.
Physical oil market
The physical oil market was designed to receive and deliver oil. The contracts are usually non-standard contracts and the risk and title of the oil is transferred to the new owner at a specific time and location. The physical market is the best market for crude oil as its global and highly competitive as the refiners source the oil while the producers compete for the oil.
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Price management market
The price management market had to be formed to counter the falling prices of oil and manage price volatility. Traders are advised to hedge to protect against falling prices of commodities. Oil companies and investors also set up contracts that provided hedging instruments for crude oil. These hedging tools protects users against price volatility and rising prices on the long run.
The Crude Oil Market
The crude oil industry is operated by demand and supply. The combinations of supply and demand keeps the trade rolling in the industry and ensures that everyone gets their right share. However, it is not as easy as that because there are different factors controlling the quantity of the demand and supply.
We have the oil reserves which are running out and causing prices to rise. We also the government currently clamping down on the magnificence of oil companies by imposing them with sanctions to push their agenda and control the forms of energy. There’s also politics that can influence the cost of the produce. All these are the current drivers of the crude oil market.
Speculation leads to distortion
Speculators who invest in the oil future can partake of its significant return in the price. Crude oil can also serve as a form of investment. The speculators are betting on if the price of oil will rise in the future. You can get tips on speculations for oil price on the Oil Profit app
Conclusion
There are a variety of factors that go into the marketing and trading of oil and these factors control. You have to understand the basics of oil trading before you venture into trading. However, you should know that crude oil is running out and by logic the market will suffer from this declination. Think of other possibilities to circumvent this drop.
