The two types of spot markets

Concretely, the exchanges take place directly between seller and buyer who negotiate the differential between the price of the finished product and the price of crude oil. There are two types of spot markets, those for crude oil and those for refined products. There are three spot markets for crude oil. Each of these three markets relating an influential zone. Mainly the London market where the barrel of Brent is listed, which is still today one of the best price benchmarks for crude oil. Next comes the New York spot market which quotes a barrel of WTI, then the Singapore market which relates to the spot market for the entire Dubai area. (Barrel Dubai Light)

The main players in these crude oil spot markets are of course the oil companies which act directly on the markets through their trading services or their subsidiaries.

As for the spot markets for refined products, they are generally found around the refining areas. This explains why there are so many.


Advantages and disadvantages of spot markets

As we mentioned above, spot markets are short term markets. When you trade in oil, you talk less and less about long-term trading. The advantage of such a system is the availability of this oil anywhere in the world, regardless of its country of origin. This system also prevents small companies from changing the prices of crude oil in order to generate personal profits. On the other hand, the spot markets are more and more reactive to the phenomena of announcements, just like the other financial markets. Their volatility is therefore more and more important due to the fears generated by certain news events which are sometimes unfounded. These effects are in fact caused by a fear of oil shortages which regularly drive up prices.


Trading on spot markets

Unless you are a big industrialist or an institutional investor, you cannot intervene directly in the spot oil market. With market knowledge, you too can invest in the spot oil market.

To do this, you simply have to go through an intermediary also called a broker, who provides you with trading tools in the form of an online platform. Usually, CFD brokers allow you to trade oil online through tools called CFDs. These CFDs  (contracts on the difference), in fact, don't offer to buy barrels of oil, but to speculate on the price of oil listed on one or more of the spot markets. Some brokers will offer you to trade WTI oil and others Brent oil.

Be careful, depending on the type of oil you are trading with CFDs, the indicators to follow are of course not the same. When you see a rise or drop in stocks of US oil, for example, it has very little influence on Brent but has a very strong influence on WTI.