Financial Spread Trade on Brent Crude Oil - Commodities Spread Betting
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Rumours around the Oil Market including, price corrections, high prices and OPEC increasing its oil exploration programme continue.
Brent Crude has risen from around $55 dollars in January, to the $67 dollar mark in April to the current price of circa $71-72
The gents at Goldman Sachs have said that the price could reach a $90 in the autumn and $95 by the New Year. Of course that was on the proviso that OPEC did not alter its thinking and increase supply. Which it has done.
Goldman Sachs did correctly predict a correction first. Although whether they expected that to be due to OPEC or the US economy less clear.
The Crude Oil market fell 5 percent yesterday as continuing problems in the US economy forced the commodities markets down.
Crude Oil has dropped 9% from an all time high of $78.77 on 1 Aug. Assuming the US economy worsens and growths slows then demand will fall. The US remains the world's top energy consumer.
Currently Brent Crude Oil (Sept) has a spread of $72.81 - $72.86 per barrel with FinancialSpreads.com.
As with many financial markets, investors can financial spread bet on commodities. ie, spreadbettors can trade on commodities prices going up or going down. Eg spread betting on value of Brent Crude Oil to rise in price to more than $72.86 a barrel by 16 Aug. That's the settlement date for Brent Crude Oil (Sept).
Note that for the Brent Crude Oil market, you trade in £X per point, where a point is 0.01 of Crude Oil movement. As an example, if your stake was $20 per point and the Brent Crude Oil moves 0.04 then that would be an $80 difference to your bottom line.
So looking at it more closely, let's say you see the live price on FinancialSpreads.com and it shows the above spread of $72.81 - $72.86. And let's say you have done your market analysis and think that the Brent Crude Oil (Sept) value will rise to more than $72.86.
Therefore you buy at $72.86 for a stake of $10 per point.
If by the settlement date of 16 Aug the Brent Crude Oil market settles at $72.98 then you have made a profit.
Your profits is calculated by taking the difference between the level the trade closed at, ie $72.98 and the price you bought at, ie $72.86.
Profit/Loss = (($72.98 - $72.86) / 0.01) x $10 per point stake.
= (0.12 / 0.01) x $10 per point stake.
= $120 profit.
Nevertheless if the market didn't move as predicted and had Brent Crude Oil finished at a lower value of $72.80, you would have lost.
Loss = (($72.80 - $72.86) / 0.01) x $10 per point stake.
= (-0.06 / 0.01) x $10 per point stake.
= -$60 loss.
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'Financial Spread Trade on Brent Crude Oil - Commodities Spread Betting' by DB, updated 08-Aug-07
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