Crude Oil Spread Betting
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With Crude Oil prices staying high the oil companies have seen their value increasing. (Reportedly) Good stock levels and Crude Oil hitting the $80 mark has pushed up the shares in a number firms in the energies markets. That increase has been helped by Goldman Sachs still forecasting the continuation of high oil prices (Financial Times) and that Crude Oil should reach $84. At the time of writing:
BP have increased 1.3% to 598p
Cairn Energy have increased 2.1% to £20.42
Royal Dutch Shell A has increased 0.8% to £21.06
Crude Oil Spread Betting Prices
The current prices with the spread betting firms:
Brent Crude Oil (November) is trading at: $79.04-$79.09 per barrel
US Crude (Nymex) (November) is trading at $81.55–$81.61 per barrel
Crude Oil – Spread Betting on Equities: December Markets
BP: 591.3p–603.3p
Royal Dutch Shell (A) 2100.4p-2106.4p
Royal Dutch Shell (B) 2099.4p-21064p
Cairn Energy: 2104.2p-2112.5p
(The above equities expire on 18 Dec)
For a detailed explanation for equities spread betting see how to spread bet on Shares?.
Spread Bet on Oil Tip
Pairs Trading
It's interesting to watch to similar companies and the correlations in their share prices. A good example is eg BP and Shell Transport and Trading.
Over the last decade Shell's share price has moved in front of BP's share price more than 10 times. Only for the shares to close the gap. Therefore some traders now wait for Shell's price to get nearer to BP's. They then Buy Shell and Sell BP. This is a simple pairs trade ie spread betting on the gap in share price widening irrespective of whether both move up or down in price. Of course this standard pairs trade is not guaranteed. As with all such investments, past performance does not guarantee future performance.
Spread Bet on Brent Crude Oil – Example
As with many financial markets you can spread bet on the future value of the Crude Oil markets, ie spread bet on the future value of Brent Crude Oil going up or going down. ,eg spread trading on the Brent Crude Oil price increasing to more than $81.61 by 12-Oct-07.
In the Brent Crude Oil market, you trade in £X per point, where a point is $0.01 of Brent Crude Oil movement. eg if your stake was £20 per point and Brent Crude Oil moves $0.04 then that would be an £80 difference to your profits.
So let's say you check the live quote on a spread betting service like FinancialSpreads.com and it is currently quoting a spread of $81.55 - $81.61. And let's you have done your research and think that the Brent Crude Oil price will be above $81.61 by the expiry date.
Therefore you buy at $81.61 for a stake of £10 per point.
And so let's say that by the end date, ie 12-Oct-07, the Crude Oil price settles at $82.01.
Then your profit / loss is worked out by taking the difference between the final value, ie $82.01 and the value you bought the spread bet at, ie $81.61 and then multiplying that by the stake per tick.
Profit and loss = (($82.01 - $81.61) / 0.01) x £10 per point stake.
Profit and loss = (0.4 / 0.01) x $10 per point stake.
= £400 profit.
Of course if the trade didn't work as expected and had the Brent Crude Oil price gone down and settled at $81.02 then you would have made a loss on this market.
Loss = (($81.02 - $81.61) / 0.01) x £10 per point stake.
Loss = (-0.59 / 0.01) x £10 per point stake.
= -£590 loss.
'Crude Oil Spread Betting' by DB, updated 21-Sep-07
For related pages also see:
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