How to trade Crude Oil for beginners
Reading time: 19 minutes
With oil prices largely dominating headlines for the first half of 2026, I do not think there has been a better time to learn about the oil market, and importantly, how to begin trading this space.
According to the May 2026 International Energy Agency (IEA) oil market report, global oil supply took a sizable hit since the onset of the Middle East conflict in late February, down nearly 13 million barrels per day (mb/d). For someone just starting, getting a handle on this concept is crucial. It shows how a change in supply can really stir things up in crude oil prices. This creates opportunities to trade not just in oil but also across other major asset classes, given the highly interconnected world we live in.
Who is producing the oil?
Per the IEA report, production is dominated by three primary groups: OPEC+ (Organisation of the Petroleum Exporting Countries), the United States (US), and Non-OPEC producers.
Total OPEC+ supply was 51.1 mb/d in 2025, up from 49.9 mb/d in 2024, while on a forecast basis, 2026 averaged 46.4 mb/d – a figure that has been distorted by the US-Iran war. The group’s output was down sharply in April to 40 mb/d as the closure of the Strait of Hormuz in early March drastically reduced production from the Gulf. This alliance consists of 12 core OPEC member countries – including Saudi Arabia, Iraq, and, until recently, the UAE – alongside allied non-OPEC nations, most notably Russia.
The US remains the world's largest individual producer. The IEA's report shows US total production hitting a new all-time high of 21.9 mb/d in April 2026, driven by record crude output of 14 mb/d.
Non-OPEC+ output is forecast by the IEA to increase in 2026, bringing total non-OPEC+ supply to an average of 55.8 mb/d, with gains driven by the so-called ‘Americas Quintet’ – the US, Canada, Brazil, Guyana, and Argentina – which are expected to deliver close to 1.5 mb/d of new supply in 2026.
What is crude oil, and why is it traded?
While I think it is fair to say that we all have a fundamental understanding of crude oil and what it is used for, I want to take this opportunity to open the door to a more thorough understanding.
At its heart, crude oil is a fossil fuel – a natural resource formed over millions of years through geological processes. It primarily comes from tiny marine organisms that have transformed over time. The main components of crude oil are hydrocarbons, organic compounds that store chemical energy. When burned, this energy is released as heat and light, making crude oil a key player in our energy landscape.
Interestingly, in its unrefined state, crude oil has very little practical use. However, after refining, oil has a number of useful properties, including as automotive fuel and heating oil, as well as petrochemicals used to manufacture plastics, medicines, fertilisers, and synthetic fabrics. This makes crude oil the foundation of much of the modern industrial world.
One thing that really struck me in the IEA report was just how rapidly the closure of the Strait impacted the entire oil supply chain. Almost overnight, it seemed, Asian petrochemical plants were in a frenzy trying to secure naphtha feedstock. Families in India and Africa were hit by Liquefied Petroleum Gas (LNG) shortages, making it difficult to cook everyday meals. European airlines were also staring down a potential jet fuel crisis right as the peak summer travel season was kicking off. It really underscores how deeply woven oil is into our daily lives and how easily that reliance can be shaken when a single chokepoint is suddenly closed off.
Also interesting is the sheer scale of the global oil trade, in which the commodity is bought and sold in international markets. This largely occurs through key benchmark grades, such as Brent crude (UKOIL), sourced from the North Sea, and West Texas Intermediate (WTI), from the US. I personally watch only these two benchmark markets.
Oil is traded for various reasons. Beyond the physical supply-and-demand aspect of oil – where nations export and import surpluses – it is widely traded as a speculative instrument in financial markets (I touch on this in more depth below).
Crude oil drivers
At its most basic level, in supply-and-demand terms, oil prices rise (fall) when supply is reduced (increased). Once you begin looking under the hood, however, you will quickly realise that its drivers include a concoction of growth, central bank policy, and markets.
What can be confusing for beginners is that crude oil has a dual nature: one in which its status drives its price moves as a physical commodity, and the other, much like a macroeconomic asset, that responds to data and headlines.
Supply and demand:
Supply and demand are the primary determinants of oil prices, but the market is unevenly distributed.
On the supply side, as I noted above, a relatively small group of producers control things, led by OPEC+, the US, and Non-OPEC, while consumption is largely dominated by the US, China, and India.
I think it is very important to understand that – as in most tradeable asset classes – oil markets are forward looking. Price action often ‘prices in’ expectations of future supply and demand. A potential OPEC+ production cut or a forecast of stronger Chinese demand can move prices immediately, even before a single additional barrel has been produced.
OPEC+:
OPEC+ is the most powerful organisation in the market. not only controlling volume but also maintaining optionality, allowing it to add supply, pause increases, or reintroduce cuts as circumstances dictate.
By deliberately reducing spare capacity while preserving the ability to respond quickly, OPEC+ caps downside risk while keeping the upside in price open. For oil traders, it is imperative that you monitor each OPEC+ meeting as it can prove to be a meaningful market-mover.
Non-OPEC supply:
Over the past decade, non-OPEC supply – mainly from the US – has been a major swing factor.
However, this trend is changing. While US production hit record highs in 2025, growth momentum is slowing as drilling decreases and mature basins decline. The US is no longer the market's default safety valve, so any supply shortfall elsewhere will increasingly depend on OPEC+ to make up the difference.
China:
China is the world's largest crude importer and the market's most powerful driver of demand. Its stockpiling behaviour alone – having built onshore inventories to historically high levels – has been enough to absorb significant global surplus. Watching Chinese policy and storing data is essential.
According to the IEA, Chinese seaborne crude imports fell by an eye-popping 3.6 mb/d from February to April 2026, as refiners cut runs in response to feedstock shortages and deteriorating margins.
Geopolitics and markets:
Given what occurred in early 2026 in the Middle East between the US and Iran, this illustrates how geopolitics can also affect crude oil. To clarify, while geopolitics influence oil, markets are broadly correlated. When oil is impacted, other major financial instruments can also experience elevated volatility, including stocks, stock indices, bonds, and currencies.
The conflict between the US and Iran led to a prolonged closure of the Strait – through which approximately a fifth of the world’s seaborne oil flows – sending oil prices broadly higher. This set off a chain of events, causing the US dollar (USD) to gain in value on safe-haven demand, and government bond yields to rise amid increased inflationary pressures.
Since crude oil is priced in USD, changes in currency value are important. When the USD gets stronger, oil becomes pricier for buyers outside the US, especially in emerging markets, which can push prices down. In the past, oil prices and the USD often moved in opposite directions, although this relationship is not always consistent.
Interest rates compound this dynamic. Low rates generally stimulate growth by making borrowing cheaper for businesses and consumers, supporting investment, spending, and risk appetite – in such an environment, oil demand tends to rise. On the other hand, higher interest rates tighten financial conditions, raise the cost of capital, slow infrastructure projects, and can temper consumer mobility, both affecting oil demand directly and strengthening the USD. As a trader, I treat the USD and the rate environment as the macro overlay on top of the fundamental picture. They rarely drive oil in isolation, but they amplify or dampen what the physical balance is already telling you.
Unsurprisingly, global economic growth (Gross Domestic Product [GDP]) is closely correlated with the price of oil. When the global economy is firing on all cylinders – with new factories being built and increased industrial activity – this requires energy to ‘fuel’ this output. So when the economy does well, oil prices tend to do well too. At the same time, a weakening economy would require less energy, thereby lowering demand and its price.
This brings interest rates into the equation. Low interest rates tend to stimulate economic activity by making borrowing cheaper for businesses and consumers. This can fuel additional demand for business – more homes are built, and factories increase output – which naturally boosts GDP growth and, by extension, raises the price of oil. However, a higher-interest-rate environment understandably makes businesses and consumers less willing to invest and spend. This slows business growth and consumer spending, thereby reducing economic output and demand for energy.
Ways to trade crude oil
Contract for Differences (CFDs):
Although still in their relative infancy and only really catching on since the early 2000s, CFDs are leveraged derivative instruments that provide access to global markets through a single platform.
The basic structure of a CFD involves two parties – a buyer and a seller – who essentially agree to exchange the price difference between the opening and closing prices. A CFD allows you to speculate on the price movement of crude oil without owning the underlying asset. You can go long (buy) if you think prices will rise, or go short (sell) if you expect them to fall.
The leveraged nature of the CFD market means traders can open a position with only a fraction of the total cost through a good-faith deposit known as 'margin'. This margin is held by the broker to cover the position while the trade is active, and is returned once the trade is complete (assuming you did not receive a margin call).
Two benchmarks that are widely traded:
WTI: Produced in the US and traded primarily on the New York Mercantile Exchange (NYMEX), it is the benchmark for North American oil prices.
UKOIL: Extracted from the North Sea and traded on the Intercontinental Exchange (ICE), Brent is the global benchmark used to price roughly two-thirds of the world's internationally traded oil.
Futures and options markets:
Like CFDs, futures and options markets are leveraged derivative contracts. The difference between CFDs and these two markets is that CFDs are always cash settled, while futures and options can also be physically settled. However, this is seldom the case.
A futures contract is an agreement that binds a buyer and seller together, essentially locking them in to buy or sell a specific quantity of oil at a specified price in the future. Options contracts, on the other hand, allow a trader the right, but not the obligation, to buy or sell oil at a set price (strike price) within a specific timeframe.
Futures and options can be used to speculate or to hedge existing positions. Personally, I feel futures and options are more complex than CFDs and are generally not recommended for beginners.
Exchange-Traded Funds (ETFs):
Oil ETFs track the price of crude oil and can be bought and sold just like a regular stock on an exchange. They offer a simpler way to gain exposure to oil prices. Examples include the United States Oil Fund (USO); another widely traded ETF is ProShares UltraShort Bloomberg Crude Oil (SCO).
In my view, ETFs can be considered a good starting point for beginners who are not ready for the derivatives market.
Oil stocks:
Rather than trading oil directly, you can invest in the shares of oil-producing companies such as BP, Shell, ExxonMobil, or Chevron. These companies' stock prices are correlated with oil prices, though company-specific factors like earnings, dividends, and management decisions also influence them. This approach is the most familiar to stock market investors and rarely carries any leverage risk as shares of these companies tend to be bought and sold at full value.
Start trading crude oil
Educate yourself:
Before risking any capital, invest time in learning. I know that this is said for any worthwhile career or endeavour, but invest in your education. This includes reading about how commodity markets work, studying technical and fundamental analysis, and familiarising yourself with the key economic reports that affect oil prices.
Choose a broker:
Select a regulated broker that offers the instrument you want to trade. I always recommend comparing commissions, the quality of their platform offering, and their educational resources.
Open a demo account:
Almost every reputable broker offers a free demo account that lets you trade with virtual money in real market conditions. Spend at least a few months on a demo account before going live. Use this time to practise reading charts, placing orders (market orders, limit orders, stop-loss orders), and testing your trading ideas without financial risk.
Develop a trading plan:
Most traders begin their journey believing that all they need is a trading strategy with an edge. While this is an important aspect, you will soon realise that a robust risk management strategy and an understanding of trading psychology are equally important. A trading plan encompasses everything you need to begin trading, and gives you the best chance of producing a return.
Trade crude oil with FP Markets
In my experience, those who succeed as traders in any market adopt a business-like approach. A weekend course or reading a book will not cut it if you want to achieve consistency in the commodities market. It is like anything in life, you get out what you put in. So, embrace the journey and enjoy learning.
With FP Markets, traders gain access to advanced trading platforms, competitive spreads, fast execution, and a wide range of educational resources designed to help you build confidence in the markets. Open a demo account, sharpen your strategy in real market conditions, and when you are ready, transition to live trading with the tools and support needed to trade with consistency and discipline.
Written by FP Markets Chief Market Analyst Aaron Hill
