How to Trade Crude Oil: OPEC+, EIA Inventories and WTI vs Brent

Crude oil prices are set by the balance between global supply, managed partly by the OPEC+ group of producers, and demand from refineries that turn crude into fuels. Traders watch OPEC+ decisions, the weekly US inventory report from the Energy Information Administration (EIA), refinery activity and geopolitical risks to supply. WTI and Brent are the two main benchmarks, and the day WTI futures went negative in April 2020 is the clearest lesson in why expiry and storage matter.

WTI vs Brent

	WTI	Brent
What it is	US light, sweet (low-sulphur) crude	North Sea-based benchmark crude
Main futures	NYMEX WTI (CL)	ICE Brent
Settlement	Physical delivery at Cushing, Oklahoma	Cash-settled against the ICE Brent Index
Role	Main US benchmark	Prices much of the world's internationally traded crude
Typical CFD names	USOIL, WTI	UKOIL, BRENT

Brent has usually traded above WTI, with the gap (the Brent-WTI spread) depending on transport costs, US export capacity and regional supply. The spread changes over time, so do not assume a fixed difference. The two prices are very closely related: a long WTI and a long Brent position are, for risk purposes, almost the same bet.

The supply side

OPEC+

OPEC, the Organization of the Petroleum Exporting Countries, was founded in 1960. Since late 2016 it has coordinated output with other producers, including Russia, in a wider group known as OPEC+. The group sets production targets and sometimes announces voluntary cuts or increases by individual members. Markets react to the decisions, to hints before meetings, and to whether members actually stick to their targets. Membership and arrangements change: Angola, for example, left OPEC at the start of 2024.

US shale and other producers

US shale producers can drill new wells within months, faster than traditional projects, so high prices tend to bring more US supply with a lag. The weekly Baker Hughes rig count, released on Fridays, is one gauge of drilling activity.

Disruptions and reserves

Supply can be disrupted by hurricanes near US Gulf Coast production and refineries, pipeline outages, sanctions on exporters such as Iran, Russia or Venezuela, and attacks on shipping or facilities. Governments hold strategic reserves, such as the US Strategic Petroleum Reserve, and can release oil in emergencies.

The demand side

Crude oil has no use until a refinery turns it into gasoline, diesel, jet fuel and other products. Refinery demand depends on fuel consumption, which follows the economy and the seasons (US driving season in summer, heating demand in winter). Refineries also shut parts of their plants for maintenance, typically in spring and autumn, reducing crude demand for a few weeks.

The crack spread measures the refining margin: the value of products minus the cost of crude. A common version, the 3-2-1 crack, assumes 3 barrels of crude make 2 barrels of gasoline and 1 barrel of heating oil. Strong crack spreads encourage refiners to buy more crude.

Big-picture demand estimates come from monthly reports by the International Energy Agency (Oil Market Report), OPEC (Monthly Oil Market Report) and the US EIA (Short-Term Energy Outlook).

The weekly EIA report

The EIA's Weekly Petroleum Status Report is usually released on Wednesdays at 10:30 a.m. New York time (7:30 p.m. in Pakistan during US summer time, 8:30 p.m. in US winter), moving when there is a US holiday. The day before, at 4:30 p.m. New York time, the American Petroleum Institute (API) publishes its own industry estimate.

Key numbers:

• Change in US commercial crude inventories (a "build" adds barrels, a "draw" removes them)
• Stocks at Cushing, the WTI delivery hub
• Gasoline and distillate (diesel and heating oil) inventories
• Refinery utilisation, production, imports and exports

The market reacts to the surprise, not the number itself.

Geopolitics

Oil is the commodity most exposed to geopolitics. Tension around the Strait of Hormuz, through which a large share of seaborne oil passes, attacks on shipping in the Red Sea and sanctions can all add a risk premium to prices. That premium can vanish as quickly as it appeared if supply is not actually lost. Trading headlines is a fast way to buy the top of a spike.

April 2020: the negative price

Early in 2020, lockdowns cut fuel demand dramatically, and in March a price war between major producers added more supply. US storage, especially at Cushing, filled quickly. The May 2020 WTI contract was approaching its last trading day, and anyone still holding it would have to take delivery of physical oil at Cushing, where space was running out.

On 20 April 2020, the May contract settled at -$37.63 per barrel. Sellers paid buyers to take the contracts. The June contract stayed above $20 that day, and Brent, which is cash-settled, did not go negative.

Lessons for every trader:

1. The front month near expiry can disconnect from "the oil price". Physical storage and delivery dominate in the final days.
2. Physical delivery is real. Never hold a delivered contract into its final days unless you can handle delivery.
3. "Impossible" prices happen. Some trading systems and products had assumed prices could not fall below zero.
4. Products tied to the front month suffer. Funds and retail products that held the expiring contract took heavy losses.
5. Size for the extreme. If a move you thought impossible would ruin you, your position is too big.

Trading oil in practice

• Instruments: Micro WTI futures (MCL, 100 barrels, $1 per tick), full WTI (CL, 1,000 barrels), Brent futures, CFDs and ETFs.
• Volatility: oil commonly moves 2% to 3% in a day and can move far more on shocks; WTI fell roughly a quarter on 9 March 2020.
• Chart and signal: see WTI on the DanioX commodity market page and the commodity signals page.