Year 2020, the beginning of the Corona pandemic. This was the time when everyone had lost their jobs, people’s businesses had shut down. Many people did not even have money to eat, at the same time many people who had an understanding of crude oil were filling their houses with money. When the price of crude oil was trading at the lowest level ever, people took advantage of this and started trading in crude. In just 2 years, crude oil gained the highest speed of its life. The price which was trading at the lowest level ever was now touching the sky. During this time, crude changed the lives of many people and their bank accounts became full of money. You can yourself guess by looking at the chart given below how people took advantage of this time.
Chart of WTI
Chart touch the lowest price of below 1 and made a high of 130 in just two years.
Brent Crude oil price chart
You will be surprised when you calculate it in profit. I will not tell you how much percentage profit was made. Do this work yourself and tell me by commenting how much percentage return you got.
Investing in crude oil has been the first choice of investors. And crude oil always remains on top in the list of professionals. Reading, understanding and researching the crude oil market is necessary for those investing in the share market. It is not just a commodity. Crude oil is a very big market, which affects equity directly and indirectly. Many products are made from crude oil, which are used every day.
Such as plastic, cold creams, lipstick, lubricants, house paints, petrol, diesel, balloons, bandages, candles, hair colour, detergent etc.
A slight change in crude oil has a direct impact on all these products and the companies manufacturing it. If the price of crude oil increases, then the price of the products of the related company also changes. Due to which it helps in predicting the share price of these companies. So if you get a hold on crude oil, then you can earn good money from the share market.
So let’s know.
What is crude oil?
Crude oil is a liquid petroleum that is found stored in various porous rock formations inside the Earth and is extracted for burning as fuel or processing into chemical products. Crude oil is an impure form of oil that must be purified before it can be used.
Crude oil is so famous among investors that it is also called black gold.
Investors
Organization of the Petroleum Exporting Countries (OPEC) is the major supplier of crude oil.
Iran (1960)
Iraq (1960)
Kuwait (1960)
Saudi Arabia (1960)
Venezuela (1960)
Libya (1962)
United Arab Emirates (1967)
Algeria (1969)
Nigeria (1971)
Ecuador (1973)
Gabon (1975)
Angola (2007)
Equatorial Guinea (2017)
Congo (2018)
All these countries are members of this organization. All these countries are big exporters of crude oil. It was formed in 1960.
3 Major Benchmark of Crude oil
West Texas Intermediate (WTI crude)
It is a light, sweet crude oil that serves as one of the main global oil benchmarks. It is mainly obtained from Texas and is the highest quality oil in the world that is easy to purify. symbol name for trading = USOIL
Brent crude
It is a mixture of crude oils obtained from the North Sea. It is light and sweet. It has a slightly higher sulfur content than WTI. But still its quality is considered similar to WTI. It is easy to purify. Brent crude is a benchmark that defines oil prices around the world. symbol name for trading = UKOIL
Dubai Crude
It is mined from Dubai. Its quality is less than WTI and BRENT CRUDE. It is also known as Fateh. Since it is mined on a very large scale, its production cost is less than others.
Relation Between US Dollar and Crude Oil
To understand the crude oil market, you will also have to understand the dollar. The dollar acts as a benchmark for most commodities and crude oil is also one of them. If the value of the dollar falls, then more dollars have to be spent to buy the same quantity of crude and if the value of the dollar increases, then fewer dollars have to be spent to buy the same quantity of crude. If the data till now is seen, it will be known that the prices of oil have an adverse effect on the dollar. From this you must have understood that after having an understanding of just crude, you will also start getting knowledge of currency trading. And you will be able to earn profit in currency as well. You can easily understand this from the chart given below.
Analysis crude oil price using oil consumption & production by country
By now you must have understood well that the pricing of crude oil is completely based on demand and supply. High demand means high price and low demand means low price. Very Good, you have learnt well. To understand the change in crude oil price, it is important to know how much oil is consumed in which country. If the production or consumption of oil is less or more, then its effect is definitely seen on the crude oil price. Saudi Arabia, Russia and United States of America are the biggest players in this. These countries are at the forefront in crude oil production. Crude oil is the major income source of Russia. If there is some problem in crude oil, then the economic condition of Russia gets disturbed. US also exports crude. But the production cost of Saudi Arabia is the lowest because crude is produced on a very large scale there.
You can see the consumption of oil in the world map given below
Source: Oil Consumption by Country 2024 (worldpopulationreview.com)
Relation between crude oil and equity
Companies which deal in crude oil like Bharat Petroleum, Indian Oil, Hindustan Petroleum, Reliance etc. If the price of crude increases then these companies get benefited, and companies which make products from oil like cement companies, tyre companies, paint companies and logistics companies etc. If the price of crude oil increases then it is not good for the profit of these companies.
In this way, if you are able to relate crude oil to another company, then it will be very easy for you to understand the share market.
Understand relation between inflation and crude oil
Crude oil plays a key role in the economic condition of any country. Therefore, the increase in crude oil prices affects the inflation rate. If we look at history, we find that when the inflation rate has increased, the crude oil prices have also increased, but this has happened for a very short time because when the inflation rate increases, the government increases the interest rates to reduce the inflation rate, which reduces the spending capacity of the people. Loans and real estate become expensive. Economic growth slows down. And all this affects the price of crude oil and the price of crude starts falling.
So, if you want to make a career in the stock market and get maximum profit from it, then it is very important for you to study crude oil.
Relation between Geopolitical, Economic events and crude oil
In 2020, the whole world faced an economic recession due to the COVID-19 pandemic, which also affected oil prices. As a result, oil prices fell. OPEC and its allies reduced oil production to stabilize prices, but oil prices still reached a 20-year low.
You can clearly see in the photo below that when geopolitical events have occurred, its effect is directly seen on the oil price.
Source: U.S. Energy Information Administration – EIA – Independent Statistics and Analysis
You read how crude oil became a money printing machine for people during war and pandemic. You read how you can profit in crude oil with the help of dollar and similarly in dollar with the help of crude oil. You read how the increase or decrease in the price of crude oil affects the companies listed in the stock market. And finally you read the effect of inflation rate on crude price.
After reading all this, you must have understood that without studying crude oil, it will not be easy to understand the stock market. And the one who understands the business of crude oil also starts understanding the economic condition of the world. In this way you read how all these links are interconnected. So study crude oil and make your future.
I hope that the information given by me will definitely be useful to you. If you have any questions or suggestions, then do comment. One of your comments will work as glucose in my fatigue during work. So do comment.