FXTM information and reviews
FXTM
95%
OctaFX information and reviews
OctaFX
94%
XM information and reviews
XM
93%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
90%
HFM information and reviews
HFM
89%

Exness: Trading oil contracts to hedge fuel prices


29 August 2022

Filling up the car at the pump is more expensive than any other time in history, which is affecting the quality of life for hundreds of millions of people, but retail investors have a strategy to offset the cost of rising crude oil prices and fuel prices. Let’s take a quick look at oil technicals and then consider one very good reason for trading oil in 2022 and beyond.

Technical analysis of oil

Technical analysis shows that US Oil broke the uptrend at the price of $106.25, retested, then declined again to below $100.

Crude oil 2022 price history with trend break line

Crude oil 2022 price history with trend break line

Now moving around $94.50 - $102 price range, US Oil is bouncing between the Fibonacci retracement range of 50% - 38.2%, and facing strong resistance by the 38.2% mark. If this recent fall continues, we could see oil prices going as low as support 2.

Crude oil 2022 price history with Fibonacci retracement

Crude oil 2022 price history with Fibonacci retracement

So oil might be overbought and over priced, making it seem like a shorting opportunity, but the long term trend suggests otherwise. Trading oil might be a risky proposition right now considering current price action.

The fundamentals of oil trading

Outside of the usual hedge fund pumps and dumps, corporate profit is the biggest influence on the price of oil today. The supply and demand dynamic remains volatile with no signs of easing or stability on the horizon. Adding to that uncertainty, global oil producers have significantly slowed production over the last 12 months causing a false scarcity. The order to reduce oil extraction came from the top of the big oil companies themselves. More than one oil refinery has scaled down pumping volumes without good cause, much to the frustration of the United States, major countries and drivers everywhere.

Last week, US President, Joe Biden, demanded that big oil companies explain why they are not increasing production volumes to stabilize the market, despite everyone knowing the answer is nothing more than inflated short-term profit. But it’s not just the American people feeling the pinch at the pumps.

The whole world has seen fuel prices double, which is adding to rising unemployment and a decline in global retail sales. While oil companies celebrate huge profits, the world struggles to avoid another recession. There’s doom and gloom all over the financial world, but perhaps retail traders have a way to soften the blow of inflation.

Trading oil futures contracts to offset fuel costs

It’s called fuel hedging and it’s commonly used by large fuel consuming industries such as airlines, shipping, and haulage companies. They’ve been doing it for years, but the same price mechanics can be used by individuals, not just companies. If you open a buy position on oil and the price rises, fuel prices will likely rise too. You’ll lose at the pumps, but profit on your trading platform. Likewise, if oil and petrol prices fall, your trades will yield negative results, but you’ll win at the pumps - saving money the next time you fill up.

5-year comparison of crude oil and fuel prices

5-year comparison of crude oil and fuel prices

To start hedging fuel prices, first calculate your average weekly fuel usage. If fuel prices rise by $0.10, how much additional cost does that generate for you? Now go to your trading platform and calculate how much US Oil you’d need to buy to generate profit that would offset a fuel price increase.

Take into account a brief price delay, since gas stations set their fuel prices based on what they paid for the tankers, not the current markets. You might prefer to open and close orders on a regular basis, but if you do occasionally keep orders open overnight, Exness won’t charge swap fees.

Is this a foolproof strategy? No… definitely not. The markets are always unpredictable, although, if you’ve done your calculations right, only a divergence between oil and pump prices may spell trouble for you, and that hasn’t happened in the last 30 years.

The bottom line

Keeping in mind that past performance offers no guarantee of future results, technicals don’t indicate a buying or selling opportunity right now. As always, the markets follow predictable routines… until they don’t. No matter which assets you trade, there’s going to be a surprise eventually, so trade responsibly and manage your funds with caution. Hedging fuel prices might work for now, but if everyone does it, we might see the first price divergence of oil prices and fuel prices in history.

Remember to set your Stop Loss close to the active price range, especially if you’re taking advantage of Exness’ high leverage.

#source

Share:


Related

OctaFX broker soon to launch own trading platform "OctaTrader"
OctaFX broker soon to launch own trading platform "OctaTrader"

After long months of behind-closed-doors technical development, the international Forex broker OctaFX finally announced its soon-to-be-launched native trading platform, OctaTrader...

4 Oct 2022

Multibank Group announces record-breaking financial figures for 2021
Multibank Group announces record-breaking financial figures for 2021

The award-winning financial services group announced a record turnover of over US$ 12.1 Billion per day, with a record annual revenue of approximately USD $ 189 million in FY 2021...

3 Oct 2022

Uncertain times call for trustworthy companies: What about OctaFX?
Uncertain times call for trustworthy companies: What about OctaFX?

How does the international Forex brokerage service OctaFX fare in light of recent uncertainties and fears on the financial markets in general and the Foreign Exchange in specific? We took a closer look at the company to find out...

29 Sep 2022

FP Markets claims a hat-trick of awards at the 2022 Global Forex Awards
FP Markets claims a hat-trick of awards at the 2022 Global Forex Awards

FP Markets has been awarded the “Best Global Value Broker 2022” for an unprecedented 4th consecutive year. FP Markets claimed two further awards for Best Forex Partners Programme...

28 Sep 2022

OctaFX is on an award spree, receiving the "Most Secure Broker Indonesia 2022"
OctaFX is on an award spree, receiving the "Most Secure Broker Indonesia 2022"

The global broker OctaFX collected yet another industry accolade with 2022’s ‘Most Secure Broker Indonesia’ distinction. The Dubai-based International Business Magazine is the award’s issuer...

27 Sep 2022

Elland Road Leads the Ultimate Trading Experience
Elland Road Leads the Ultimate Trading Experience

Marching on the road to progress with us has never been easier. At Elland Road, we look forward to giving you everything you need to leverage daily challenges and online trading experiences...

22 Sep 2022


Editors' Picks

IronFX information and reviews
IronFX
88%
FXCM information and reviews
FXCM
87%
NordFX information and reviews
NordFX
85%
Vantage information and reviews
Vantage
84%
FP Markets information and reviews
FP Markets
81%
RoboForex information and reviews
RoboForex
81%

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.