A crude oil trader is simply a trader who makes money by speculating on the short-term or long-term price movements of crude oil. The price of crude is constantly fluctuating, giving its traders the opportunity to gain from the differentials.
As of July 15, 2020, data from ZipRecruiter estimated the average annual pay for a crude oil trader in the world’s largest economy at $87,517 a year.
Some months ago, the world’s most prestigious investment bank, Goldman Sachs, in a report credited to Bloomberg News, revealed that the bank’s commodities unit generated more than $1 billion in revenue this year through May, pouncing on wild swings for its best start in a decade. Much of the boost came from oil trading.
The data shown above shows how high the desire is among many career professionals to become crude oil traders.
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Lukman Otunuga a Senior Research Analyst at ForexTime (FXTM) spoke to Nairametrics on the kind of fundamental analysis crude oil traders need to make. He said:
“Crude oil traders need to be aware of geopolitical risks. E.g., rising coronavirus cases in the largest economy in the world could trigger concerns over falling demand for crude oil. Also, questions are being raised about whether OPEC + decision to taper record productions cuts from 9.7 million barrels per day to 7.7 million barrels per day starting from August is premature.”
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He emphasized the importance of a crude oil trader understanding the international benchmarks of crude and the macros driving it, saying:
“It’s vital for a crude oil trader to understand the types of oil traded on the commodities exchange and what drives them. For example, taking a look at recent macros, WTI Crude and Brent have appreciated over 8% since the start of Q3; they are both down by over 30% year-to-date. While oil prices could benefit from a broadly weaker Dollar in the near term, the medium to longer-term outlook remains clouded due to COVID-19 and renewed US-China trade tensions.”
Dapo-Thomas Opeoluwa, an independent oil trader, in a phone chat interview with Nairametrics, explained why it’s important for a crude oil trader to understand and interpret the macros affecting the energy industry. He said:
“Being an oil trader requires a significant amount of energy market research. An oil trader has to be abreast of global news and developments.
“Fundamental news ranging from OPEC meeting outcomes to API inventory reports on Tuesdays, EIA inventory reports on Wednesday by 15:30 pm U.K time, and Baker Hughes data released on Friday.
“Analysis of all these events guides how we position ourselves in the market. We study tensions between China and the United States, Middle East tensions, and news that might affect superpower oil consumers and producers.”
“The major upswings or downturns in oil markets occurs as a result of geopolitics. Last year, we witnessed high oil prices as a result of tension between Iran and the United States. This year, we witnessed a crash in prices as a result of the conflict between Saudi Arabia and Russia.”
Ted Odigie, Head of Retention, Scope Markets, said that every successful crude oil trader can’t afford to do without having a proper understanding of technical analysis and risk management. He said:
“A good Oil trader should be able to manage his or her risk efficiently. To remain profitable two key analysis needs to be employed consistently, on a daily basis.
“Firstly, Fundamental Analysis which overseas overall market risk, ranging from a change in market dynamics, operational and Liquidity risk needs to be understood. As pricing is affected by these. Analyzing risks arising from these provides a better preparedness for better entry positions and with reasonable risk-reward margin settings for trading.
“The other and also very important risk management application is Technical Analysis. This involves the use of Candlestick charts designed as a representation of general market activities historically from previous trades to most current. The chart patterns details price movement of Crude Oil offering an opportunity for balanced and lower risk trading approach, as the patterns in historic perception help trading recognize better entry and exit points.”
Adegbotolu Kehinde, a professional trader, spoke on the need for anyone aspiring to be a crude oil trader to first understand the supply and demand factors that drive the energy market. He said:
“If for example, major crude oil producers such as Saudi Arabia, Russia, Nigeria decide to increase crude production daily, especially with the present fragile demand on crude due to the resurgence of COVID-19 virus, there will most likely be an oversupply of crude oil thereby causing a decline in price.
“A crude oil trader needs to understand these economic factors, in relationship to price movements, knowing when to go long or short.”
Crude oil traders need to understand the strength of each political outcome, as news coming from major oil producers and OPEC tends to affect the crude oil market.
Finally, it’s instructive to know that the present world can boast of less than 10% successful crude oil traders; to be among the few, you must have a very good strategy, proper risk management plans, be highly disciplined, have the ability to make snap judgment calls, and great knowledge of energy markets.