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What Does an Oil Trader Do?

An oil trader navigates the complex world of commodities, buying and selling oil to maximize profit. They analyze market trends, geopolitical events, and economic indicators to make informed decisions. But how do they predict these trends and make profitable trades? Let's delve deeper, shall we?
K. Kinsella
K. Kinsella

An oil trader buys and sells barrels of oil on behalf of an energy company, an investment firm or another business entity. Aside from buying oil, traders also buy futures contracts that enable them to buy quantities of oil for a specific price on a particular date in the future. Typically, oil traders receive a base salary but many traders receive the bulk of their compensation in the form of commission.

Most individuals employed as an oil trader have a college degree in finance or business. Some energy companies actively recruit students from major universities to work as traders while other individuals become oil traders after gaining trading experience as stockbrokers or investment sales agents. Traders who buy and sell commodities of oil through commodities exchanges often have to obtain securities licenses from national or regional regulatory authorities. Investment firms employ traders who can trade oil as well as other types of commodities such as gas, gold and silver. These traders normally are normally licensed to sell all types of marketable securities including stocks and bonds as well as commodities.

A pumpjack oil well.
A pumpjack oil well.

An oil trader employed by an energy producer must negotiate sales contracts with utility providers, manufacturing firms, investment companies and other entities that purchase quantities of crude oil. Oil production levels vary over the course of time which means that traders have to raise or lower prices so that company profits remain relatively steady despite the imbalance between supply and demand. Some traders agree long-term sales contracts with national governments and businesses. Traders must make predictions about future movements of oil prices when entering into long-term deals to ensure that the company will benefit from the contract over the long-term.

An offshore oil platform. Problems with drilling, as well as the quality of oil extracted, can affect its price.
An offshore oil platform. Problems with drilling, as well as the quality of oil extracted, can affect its price.

Utility companies and refineries employ oil traders who must agree purchase contracts with oil producers and sales contracts with other clients. An oil trader employed by a utility firm or refinery must generate a profit for the firm by purchasing oil at low prices and selling onto other entities at a higher price. Traders must also arrange to have quantities of oil stored in suitable locations. On some occasions, an oil trader may have to sell quantities of oil at below market prices to clear excess inventory if the firm lacks the storage space to maintain current inventory levels.

Oil traders keep abreast of regulatory changes that may affect oil tanker operations.
Oil traders keep abreast of regulatory changes that may affect oil tanker operations.

Investment firms employ oil traders who are tasked with generating profits from oil transactions. Since investment firms have no storage facilities for oil, traders must buy and sell oil within a short space of time so that the investment firm never physically takes possession of the commodity. Many traders employed by investment firms prefer to sell futures contracts rather than barrels of oil so as to reduce the likelihood of having to sell oil at a discount price in order to make a quick sale. Speculators are investment sales people who attempt to push up the price of oil to generate quick profits. Traders buy large quantities of oil at low prices to create an imbalance between supply and demand and this causes oil prices and firm profits to rise.

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    • A pumpjack oil well.
      By: Edelweiss
      A pumpjack oil well.
    • An offshore oil platform. Problems with drilling, as well as the quality of oil extracted, can affect its price.
      By: eyeidea
      An offshore oil platform. Problems with drilling, as well as the quality of oil extracted, can affect its price.
    • Oil traders keep abreast of regulatory changes that may affect oil tanker operations.
      By: keller
      Oil traders keep abreast of regulatory changes that may affect oil tanker operations.
    • Investors in oil futures must monitor refinery production to see if regulatory, technical, or meteorological factors will affect oil supplies.
      By: Tomas Sereda
      Investors in oil futures must monitor refinery production to see if regulatory, technical, or meteorological factors will affect oil supplies.
    • Oil traders deal in crude oil.
      By: jamenpercy
      Oil traders deal in crude oil.