The Two Key Factors Affecting the Price of Oil - City Index

LONDON, July 6, 2011 /PRNewswire/ --

 

Each year, oil seems to become more important to the global economy as fluctuations in its price create significant knock-on effects across world markets. Spread betting and CFD trading provider City Index (http://www.cityindex.co.uk/) explores two key influences in the price of oil: Supply/demand and market sentiment.

Supply and Demand

 

Supply and demand is one of the fundamental components of a market economy. As demand for a product increases, its price will rise. As demand decreases, its price will fall.

However, because oil is set in the futures market, its supply and demand structure is slightly different. Futures contracts are binding agreements between the buyer and seller to exchange a product at a specific price on a specific date in the future, sometimes months or years in advance. This means as well as speculating on the price of the commodity in the future, traders can also buy oil futures as a hedge against another position, such as airline shares.

Market Sentiment

Sometimes, the belief among speculators that oil demand will rise significantly in the future is enough to cause a significant increase in oil prices in the present, as traders buy oil futures contracts. The opposite is also true, with traders selling oil futures contracts due to an expected drop in demand.

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About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, contracts for difference (CFDs) and, in the UK, financial spread betting.

We constantly look to improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, and a high standard of customer support. Visit http://www.cityindex.co.uk/ for more information.

 

Contact: Joshua Raymond, City Index, +44(0)20-7107-7002, joshua.raymond[at]cityindex.co.uk