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Crude oil: A slippery commodity to deal with
By Ellen Kelleher Published: September 25 2009 01:59 | Last updated: September 25 2009 01:59The swings in the price of crude from one week to the next are not deterring punters from betting that it will rise higher than its current range of $60 to $70 per barrel in the comingweeks.After indices and commodities, oil is still the third most popular trade at spread betting firmsand the sharpness of its volatility is its principal attraction. While a 3 per cent inter-day dropin the FTSE 100 is regarded as a significant loss, a $4 fall in the crude oil price is par for thecourse.The consensus among those who follow historical charts is that the oil price is likely to risefor at least a period before it stages a retreat and offers more advantages to short-sellers.Punters taking long-term bets on oil have had a decent run in the past 15 months. WTI Crudeoil rose 157 per cent between January 2007 and July 2008 to hit $145, then fell 71 per cent to$40 inside six months, before rising 52 per cent to $70 this year.And while its price is unlikely to hit the peak of $147 a barrel last seen in July 2008, analystssay that it is likely to gain further ground, despite the expectations of economists at theInternational Energy Agency, who said recently that the world’s economy cannot sustain afurther increase in oil prices.Analysts at
Goldman Sachs
predict that increases in both Opec and non-Opec oil productionwill be limited this year and petroleum inventories in developed markets will shrink and oil prices rise.Goldman has reiterated its forecast for oil prices to reach $85 a barrel by the end of the year and crude would reach $95 a barrel by the end of 2010, as spare Opec production capacity became exhausted and non-Opec production fell, even as demand strengthened further.“The IEA may well be right but there are other implications to consider,” added David Buik,spokesman for Cantor Index. “It would be wrong to underestimate the role China will play inoil and commodities. Oil could prove a very attractive trading product, remaining volatile for at least another six months.”The fluctuations in oil are so big, that punters tend to limit their bets, placing an averagewager of £3 to £5 ($5 to $8) a point on a barrel compared with £10 a point on an index,according to Simon Denham, managing partner with Capital Spreads.Last year, when markets reversed, crude prices fell 78 per cent within five months, whichamounted to a loss of 11,487 points in spread betting terms, says Joshua Raymond, a marketstrategist with City Index. If you shorted just £1 a point, you would have earned a profit of more than £11,000 over that period, by Raymond’s estimates.“The amounts are quite remarkable. This volatility of course breeds opportunities to make or lose a lot of money in trading crude oil. As spread betters are naturally very opportunistic,this is one of the key reasons why they find crude oil so inviting,” points out Mr Raymond.It is difficult to gauge when the oil price is likely to tumble and if it does, it is unlikely to fall precipitously, given the improving economy and stabilisation of demand and productionlevels, analysts predict.“I think it may be a little unrealistic to think we will see anything like the dramatic falls wesaw last year any time soon,” says Mr Raymond. “Oil prices have started to stabilise over the past three months at $70 per barrel.”
 
Pinpointing the “true fundamental value” of a barrel of oil is a daunting task. Back in 2005,for example, when it was trading at $60, it was thought to be expensive. But when HurricaneKatrina arrived later that year, the price went higher.“The same could be said for last year, when prices broke through $80 a barrel then $90 a barrel and $100 a barrel before topping out at $147,” claimed one analyst. “There has been alot of noise made over the impact of potential rogue trades pushing prices artificially higher and this makes the fundamental value of crude even more clouded.”In the near term, the close of the summer driving season in the US and Europe is likely todepress prices. However, if the US dollar loses ground, this could well strengthen prices andact as a balancing weight.The weaker the dollar, the more oil the Europeans are likely to buy. But if the dollar gainsmomentum, crude prices could well drop in response. The hurricane season poses another threat, as severe damage from storms could provoke a spike in oil prices.Capital Spread’s Mr Denham encourages clients interested in taking bets on oil to studyhistorical trading ranges as a guide to future resistance levels for pricing. Weekly economicreports such as the announcement regarding the rise or fall of US inventories also should bestudied, as these announcements also drive prices, he concludes.
Veteran Multi Millionaire trader Vince Stanzione gives these tips togetting started in Financial Spread Betting
1.
 You can make money in all market conditions
While many areas of the media report the grim headlines, what theyforget to tell you is that opportunities to make money as a smart traderare all around you. Today thanks to spread trading you too can profit frommarkets, shares, currencies and commodities to go down (Short Sell), togo up (Long Buy) and to even trade sideways (Barrier Range), where youwould bet for a market to stay in a trading range say FTSE to stay within arange of 5,800 to 6,100 for the next 20 days. This can be done via abookmaker such aswww.betonmarkets.netRemember, shares andmarkets fall faster than they rise so you can make much more money in afailing market than a rising one. Also the financial markets are like aseesaw, if money flows out of one market, say equity markets, then itflows into another market, such as commodities or bonds.If the US dollar is weak, then the Euro, Swiss or Australian Dollar will bestrong. Trading is a zero sum game, you always have a winner and a loser.
2. Start small and build up - No successful trader starts out in abig way.
For my own spread trading I started out with £2,000 of risk capital, today Itrade £50,000, £100,000+ per transaction without even blinking. Thanksto small bet sizes and practice accounts offered by some financialbookmakers such aswww.capitalspreads.comyou can trade via a realsystem with no risk. This beats the old paper trading game. Then you canstart trading with small stakes and build up. One of my secrets of success
 
is using the power of compounding profits and trades.
3. Diversify
 The advantage of trading with a financial bookmaker is that it allows youto trade numerous products such as currencies, commodities, stocks andbonds all from one account, yet most customers stick to FTSE or DOW. Bydiversifying your bets you reduce risk especially in non-correlatedmarkets, i.e. S&P500, Dow, FTSE, Dax are all major stock indices, you cansafely say if the S&P goes down, the others follow.However, if you traded one of the above and also Gold, Oil, Wheat or$/Swiss Franc, you would have a far better balanced account. Anothersuccessful strategy that I trade is trading sectors. For example, you couldbet one sector to go down such as Telecommunications and one sector togo up such as Tobacco.With Financial Spread Trading you can trade over 30 major FTSE sectorsboth to go Long (buy) and to go Short (sell). Above we see the Tobaccosector showing excellent strength as Telecommunications slump.
4. Know your personality and trading style
While “day trading” and short-term bets may sound exciting the truth isthat my wealth has not come from short terms bets. It has come fromtrading trends over weeks, months and years. While brokers andbookmakers like to generate more business from active customers, thewinners in the long run are the least active traders. For many readers thatare more conservative and with a little grey hair, you will not be suited toshort term in and out trading. As a trend trader I am not glued to a screenall day and only check prices at the end of the day and on some tradesonly once a week.
5. Money management is the key to survival
A good trader does not need to make money that often. In fact, you couldget 80% of your trades wrong and still make money. Let’s say you lose£100 on 8 trades and you then make £500 on two trades, you are in profit.However sure you are that the market will crash or XYZ is going to soar,make your first trade a small one, and then, if you are correct, add moreto that trade. Pyramiding a successful trade is the key to making largereturns. Never add to a losing trade!
6. Cut losses and let winners run
Everyone tells you this, but few can do it. Trading comes down to
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