Know about how to trade the OPEC meetings and boost your profitability with the market volatility.
Crude oil is one of the most important commodities in the market for traders. Individuals make a lot of money from the market by trading crude oil. As this is a core commodity and there will also be demand for it, everyone wants to trade it.
Like any other commodity, there are several factors that influence the prices. Factors like economic conditions, politics, and new policies impact oil's flow across the world. One such dominating factor that for sure influences the oil is OPEC meetings.
OPEC or OPEC+ meeting is a major turning point for the prices of oil as OPEC is the commodity market. Like any other important announcement like the NFP report, you can also trade on OPEC.
Why OPEC Meetings Are important
The OPEC and OPEC+ carter have strong control over almost 50% of the global supply. And along with it, they also control almost 90% of the proven oil reserves. This powerful group can dictate the price of oil for the short term if not on a permanent basis.
In a short term, they have a very strong influence over the oil prices and the impact dilutes over time. It happens because every country has its own price structure for the oil supply.
This collective group comes at a common price on which they will sell the oil. If they want to increase the price, they will decide to produce oil within certain limits. But, reducing the oil supply is not the correct way as it will impact other sectors. This group tries to keep the prices and supply on a higher node. This is the reason why these OPEC meetings are important for every commodity trader.
Oil pricings and oil supply:
The OPEC cartel decides the supply to influence the market price. It's a fact that how much the companies are producing the oil will influence the price in the market. If the group OPEC countries are not happy with the current oil prices, it's easy for them to surge the price at any time. This is the reason you need to know about the OPEC meetings as it will impact your trades.
The OPEC members meet two times a year to review the oil prices and give a new direction to the oil market. The main focus of the meeting is to improve profitability while retaining the supply. After the meeting, traders get to know about their decisions over oil production.
The effect of the meeting is temporary
Before you decide to trade on OPEC meetings, you need to know some basics. The impact of the meeting is strong but it doesn't last for a very long time. If you want to trade on OPEC meetings, you need to keep a keen eye on the meetings, speculations, and results. When the results are out then you only need to execute the strategy that you made earlier.
Its significance on commodity traders
When we are following an OPEC meeting schedule, we are doing fundamental analysis. The core research is very important for any trader no matter what they trade in the market. Doing fundamental research brings more clarity to your trading strategy.
Keeping a keen eye on the economic calendar and meeting updates will help you refine your plan. OPEC meetings can affect the other industries in a significant way. Not only commodities, but the forex market will also experience a hit.
During the OPEC meeting, the market becomes volatile and it can disrupt trade plans. So, even if you are not trading crude oil commodities, you need to keep a check on it to protect your portfolio.
Follow OPEC to avoid the risk
The major reason why you should follow the OPEC results is to avoid any kind of surprise element. Although the entire market is unpredictable, there is always a scope for safety. By performing basic fundamental and technical analysis, you can protect your capital.
Crude oil has a direct impact on every industry and it's better to keep an eye on what's happening in this domain. Whether anyone is a currency trader or a stock trader, crude oil plays a vital role.
How to Trade on it:
After knowing the influence and the importance, it's worth it to trade on OPEC meetings. But, there are some vital tips that you need to keep in mind while trading OPEC summits. For both short-term and long-term traders, there are some general practices.
Let's dive into some tips or ways to get started with OPEC trading and grow profitability. On a practical note, there are three possibilities of the meeting and we will discuss all the three.
Hike in production:
If OPEC decides that they are planning to pump up the production, you need to know that the prices will go down. The prices will not do down at speed but still, get a correction for the short term. For such a situation, trading short can be beneficial for you.
At the initial stage, the market will be very volatile and you can grab this opportunity for your profit. But, you need to keep in mind that the risk factor in this oil trading will be higher. With an accurate stop loss on your position, you can trade the oil short during the OPEC meeting.
If the OPEC meeting has come up with the decision of production cut to raise the price, it's time to book profits. While taking a stop loss, you can book your profits while taking profits of the market volatility. It's better to do fundamental and technical analysis of crude oil before the trade.
One thing to note here is that the prices will go through a correction in the long term. So, the opportunity to trade and make money is for a short period.
It happens quite often that the OPEC meeting only comes out with general discussion. Sometimes it's more of a review meeting with no changes at all in the current flow. In such a situation, you do not get very bullish or bearish over the meeting output.
The market might get a mixed reaction when the meeting outputs are neutral. If you are investing in oil companies, and have a long-term vision, then you don't have to worry much about it.
Trading oil needs experience
If you are a beginner in oil trading, it's better to study the market in detail to learn how it works. Once you gain more experience in oil trading, then dealing with OPEC meetings will be easy. Along with the fundamental and technical research, you should also focus on the news. Many things come out 'unofficially' before the OPEC meetings.
To go with the speculations or not will depend on how much experience you have. The more you know, the better you will be able to trade OPEC meetings for higher profitability.
Trading OPEC meetings are rewarding but you need to do proper research and analysis of it. Like any other important announcement trading, OPEC is also a popular option. If you are starting out in commodities trading, you can start this. But, it's important to be firm on the research that you are doing.
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