Analyzing Crude Oil Prices

crude_oilOf all the most commonly traded commodities, Crude Oil is certainly one of the most volatile ones. Oil is traded in most of the top Forex trading platforms. Oil prices directly affect the Forex market and many Forex traders look to Crude Oil prices as a means of diversifying their portfolio. And because Crude Oil prices fluctuate tremendously, using Crude Oil price technical analysis is the most efficient way to decipher how Crude Oil prices will move.

When it comes to most financial investments, there is always a choice of basing your moves on fundamental or technical analysis and there are advantages and disadvantages to both approaches. The consensus is, however, that technical analysis is easier for novice traders as the information is right there in front of them whereas with fundamental analysis, you must go searching for the relevant data before assessing the trading situation. And as often happens, by the time you read the information, it is already old news and its impact has already been felt both locally and globally.

Crude oil follows the same route as other financial instruments and Crude Oil price technical analysis is considered the preferred method of study not only for beginner traders but also for professional and experienced traders as well.

Fundamentals are Important as Well

On the other hand, it is quite difficult to trade a commodity such as Crude Oil without looking at the various fundamentals that have a direct impact on world oil prices. Crude Oil prices fluctuate based on a variety of factors including natural disasters, political factors, fluctuations in the currency markets as well as announcements of local events that have direct bearing on oil. For example, last Wednesday evening, Libya announced that it is planning to open one of its key oil fields over the next two weeks. If this happens it would nearly double the supply from that country as compared to its current levels.

By the end of the trading session on Thursday, WTI oil was down around $3 per barrel to close at $95.44 a barrel and marking it the biggest single session drop since Nov, 2012. In addition, the announcement alone will most certainly have a direct effect on the future price of Crude Oil, possibly lowering the price even more as investors opt to sell out of the positions they are currently holding. What’s more, now that traders have a heads up on Libyan plans, they can act accordingly—either buy or sell according to their present situation.

These sorts of fundamentals have both a short term and a long term impact on commodity prices but it is extremely difficult to stay on top of local events since by the time these happenings are announced, it is already too late to do much with them. Their influence has already been felt. It is for this reason that most commodity traders avoid fundamental analysis and rely solely on technical analysis as the basis for their decision making. And Crude Oil price technical analysis is the most commonly used tool for predicting oil price movement.

 

Danny Gedim is a stock and Forex trader and a freelance writer , specializing in oil and gold . He’s been writing Forex lessons for the past 2 Years and you can find some of his lessons in FXAcademy.com
He currently lives in Richmond, London UK.