Présentation of spot markets
To trade oil, one must learn about the operation of spot markets. On these markets, the crude oil as well as refined oil derivative products are available as futures exchanges. These markets also fix the oil price which serve as reference prices throughout the world. Specifically, the exchanges are directly between sellers and buyers who negotiate the differential between the finished product price and the crude price.
As you have no doubt understood, there are two types of spot market, one related to the crude and the other related to the refined products. The oil spot markets number three. Each one of these corresponds to an area of influence. These are the London market where Brent barrel price is quoted, currently one of the best reference points as regards crude prices. Then, the New York spot market quotes the WTI barrel, then we have the Singapore market that corresponds to the spot market of the entire Dubai area (Dubai light barrel).
The main participants of these spot markets are the oil companies which act directly on the markets via their trading services or subsidiary companies.
Regarding the spot markets for refined products, in general they are found in the refining sectors. This explains why they are so numerous.
Advantages and disadvantages of spot markets
As mentioned above, the spot markets are futures markets. When the oil is traded, it is generally along the lines of short term trading. The advantage of such a system is the placement of oil for disposal around the world, no matter what country it comes from. On the other hand, this system prevents the small companies from modifying the crude price with the objective of making personal profits. Also, the spot markets are increasingly reactive to the announcement phenomena as well as the other financial markets. Their volatility is important due to the concerns raised by certain news, which are sometimes groundless. These effects are, in fact, produced through the fear of oil shortages that makes the prices increase regularly.
The operation of the Spot market for oil:
The Spot market for oil therefore shows a spot value per barrel of oil using the daily data or that of the moment when the value is calculated. To do so, it uses the operational search, capable of detecting tiny variations in the price by using the finished product yields of each refinery structure.
The Spot market is of course reserved for real physical trades in oil and therefore for industrials who order their stocks. However, it is entirely possible to make money by speculating on the movements in the price per barrel by using other methods.
The simplest method for individuals to trade in oil is by using CFDs, which can be likened to types of online contracts available through specialised brokers. They offer a simple but effective trading system that enables you to invest in the price of black gold.