Speculating On The Crude Oil Markets

For now oil prices seem have to halted the sell off that commenced at the beginning of May 2010

. Once again the $70 per barrel level has provided support. If the price support holds then the bulls will be expecting a return to $80 sooner rather than later. Although that is unlikely to happen if the current bout of risk reduction continues.

As Simon Denham of Capital Spreads recently commented, As is often the case, the price of crude seems to be rather entwined with the stocks markets. Since the last quarter of 2008 the general trends of both stocks and crude have been almost identical. It is a big if but if the equity markets can remain solid then there is no particular reason for sharp moves in either direction.

If stocks continue to be volatile then we can probably expect the oil markets to be equally volatile.

Underlying the market movements though is the undeniable fact that, just for the moment, there is a surplus of crude oil about. Traders would be advised to be cautious about expecting a return to the $80 per barrel level just yet.

If you speculate on the oil markets then crude oil spread betting offers some interesting features and is worth considering. Naturally, as with all types of investment, be it on stocks and shares, ETFs, pensions etc, there is a negative side. With spread betting you need to be careful because you can lose more than you initially invested.

Nevertheless there are some useful benefits. To keep your trading costs down there are no broker's fees or commissions. Also, spread betting is not liable to stamp duty, capital gains tax or income tax*.

Furthermore spread betting lets you trade a market in both directions. You do not have to spread bet on markets to go up. If you think the price of a barrel of oil will go up you can spread bet on it to go up. If you think the price of a barrel will go down you can speculate on it to go down.

Note that with spread betting you are not restricted to the key UK and US oil markets. Investors can gain exposure to many new global markets. There are a wide variety of markets available through a spread betting account including stock market indices like the Dow Jones and FTSE 100, currencies like GBP/USD and commodities such as oil, gold and coffee.

Whichever markets you choose to trade, note that financial spread betting does carry a high level of risk. Ensure that spread betting matches your investment objectives. Familiarise yourself with the risks that are involved. Seek independent advice where necessary.

* According to current UK tax law. This may change or differ depending on your personal circumstances.

by: Peter Jones

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