How is oil currently traded? How does the price of oil affect the foreign exchange market?

To date, oil is an important component in the global economy. It is not only itself a raw material for the production of many synthetic materials, without which a modern person can not imagine his life, but also acts as fuel, which means that it is necessary for the production of everything else. Many people are interested in trading in oil and gold. How to trade in oil and why prices are so important for this fuel, we will discuss in today's article.

What does the brand consist of?

Oil is not only a key element of the global energy system, but also one of the most popular exchange instruments. The news often speaks of oil prices as the cause of all problems. Therefore, sooner or later, any person raises the question of how oil is currently traded and whether it is possible to make money on it. As a result of the initial data collection and analysis, it becomes clear that quotes for this resource are extremely sensitive to world events. And this makes an understanding of how oil is now traded, even more important, as it gives an idea of what is happening on the planet. In addition, speculation on the volatility of prices for "black gold" is often not just an exciting, but also profitable occupation.

Oil is a natural mineral that looks like an oily liquid of black color with a specific smell. It consists of a complex mixture of hydrocarbons. There are several types of oil. They differ in composition. To simplify the export of oil, certain standards were set. Often, the assignment of oil to the variety is associated with the deposit where it is mined. The latter depends on the presence of impurities, the sulfur content and the presence of various alkane groups. In the world market, the following types of oil are distinguished:

• Brent. This is perhaps the most famous brand of oil. It has been the basis for pricing for almost half of other varieties since 1971. It is mined in the Northern and Norwegian Seas.
• WTI (West Texas Intermediate) or Light Sweet. This oil grade is considered the reference oil. It is mined in the state of Texas in the United States.
• Urals. This name is a generalization for the designation of oil, which is extracted in the territory of the Russian Federation. It is received in the Far East, Siberia and the North.
• Siberian Light. This is another grade of Russian oil. It has a little more sulfur than the previous one. Obtain this variety in the fields of Western Siberia and the Khanty-Mansi Autonomous Area.
• Arab Light. This variety is mined in Saudi Arabia.

The oil market

As we have already explained, different grades differ in their quality characteristics. Therefore, the price for them can not be the same. It is formed in the same way as any other commodity: on the basis of supply and demand. The most important parameter of this fuel is its density. Light varieties are considered more valuable. This is due to the fact that of them you can get more light oil products, for example, gasoline. Another characteristic is the sulfur content.

Such an abundance of varieties makes it difficult to understand how oil is currently traded. To facilitate the analysis, reference marks are used. For Europe, this is Brent, for the USA - West Texas Intermediate or Alaskan North. In the framework of OPEC, previously, Arabian oil was used as a reference. However, now inside this organization is used a "basket" of seven varieties. As for oil from Russia, it is exported under four brands. The most famous of them is Ural.

Interesting Facts

Consider everything about oil.

Oil trading until the 1970s was not as profitable as it is now. The barrel cost about three US dollars. However, the price jumped sharply after the declaration of the embargo on the export of Arab oil, which occurred in 1973. The new price was $ 12.

Another sharp jump occurred in 1981. This year, the Iran-Iraq crisis took place. The price increased from $ 14 to $ 35.

Oil is called "sweet", if the sulfur content in it is low. Such varieties do not require additional processing costs. Accordingly, "acidic" is considered to be oil with a high sulfur content. Such names are associated with the fact that until the end of the XIX century, experts tried to determine the quality of black gold for taste.

Quotes for the fuel on the New York Stock Exchange are quoted in dollars per barrel, but for petroleum products - in cents per gallon.

The actual delivery of the volumes stipulated in the contracts is extremely rare. Only 1% of contracts is not for speculation on quotations.

How is oil currently traded?

Until the 1970s, the industry was extremely monopolized, so prices were fairly stable. Long term contracts were concluded on the market. However, such a system turned out to be unstable and collapsed at the first crisis. Considering how oil is currently traded, the following ways can be distinguished:

• With the help of exchange futures contracts;
• Through long-term contracts between direct producers and consumers;
• With the help of contracts that are concluded outside the exchange, this market is not tied to the place and represents a global network of brokers.

Most of all oil is traded on the New York and London stock exchanges. The standard contract volume is about 1000 barrels. In the over-the-counter market, standards are not regulated.

How is the cost of oil determined?

There are about 200 varieties of this fuel. Those of them that are reference in certain regions are considered highly liquid. The competition on them on exchanges is almost perfect. Therefore, speaking about how oil is traded now, we are talking primarily about reference grades. The cost of the rest is usually calculated in relation to them, the exact formula is indicated in the specific contract for purchase or sale. The cost of transportation is also taken into account.

How does the price of oil affect the foreign exchange market?

Quotations for the mineral fuel under consideration are determined not only by economic laws, but also by geopolitical prerequisites. Russia is highly dependent on oil prices. If they fall, the ruble depreciates. This is exactly the case with the US dollar.