Speculators and hedgers alike love to trade NYMEX crude because of its liquidity, but there is more to this market than just buying low and selling high. When you are first going to trade any kind of market, you need to know the fundamentals of that specific commodity. You need to know what possibly drives these prices higher or lower.
There are many different fundamental factors when trading NYMEX crude. The one main factor that stands out is probably something that you have learned early on – “supply and demand”. Supply and demand is an economic model based on price and quantity in a market. It predicts that in a competitive market, price will fluctuate to equalize the quantity demanded by consumers as well as the quantity supplied by producers, resulting in an economic equilibrium of price and quantity. If there is too much supply and not enough demand prices may plummet, and if there is too much demand and not enough supply, prices may rise. When you’re trading NYMEX Crude, you have to watch for the DOE (Department of Energy) numbers that come out every Wednesday @ 10:35 am. This will let you know what is going on with inventories and the supply of crude week to week, year to year. OPEC also has an influence on the price of Oil. If they feel the need to, at any time, they can raise or cut production.
Weather is also a fundamental factor. As we saw in 2005, Hurricane Katrina came in from the Gulf of Mexico and ripped through oil rigs off the coast of Louisiana as a category 5 hurricane. The damage that Mother Nature caused pushed NYMEX Crude prices over $4 in the blink of an eye.
NYMEX crude Oil is usually in demand in the winter and summer. June, July and August we see more people driving around using up gas while they vacation with their families. In the winter, we see frigid temperatures which may cause consumers to start using up Heating Oil, a derivative of NYMEX crude. Both of these scenarios may possibly send prices higher.
Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.
