Oil trading explained: WTI vs Brent, OPEC+, inventories and the futures curve

Trading oil means taking a position on the price of crude, almost always through a contract that is linked to one of two benchmarks: West Texas Intermediate (WTI) or Brent. Retail traders rarely touch a barrel; they trade futures, CFDs or exchange-traded products whose prices are derived from the futures market. Understanding that link, and the forces that move the benchmarks, explains most of what surprises newcomers about oil, from sudden weekly swings to the day a US crude contract settled below zero.

The two benchmarks: WTI and Brent

Crude oil is not one product. It varies by density (light or heavy) and sulphur content (sweet or sour), and it is produced in hundreds of places. To make pricing practical, the market uses a handful of benchmark grades against which other crudes are priced at a premium or discount. Two dominate.

West Texas Intermediate (WTI)

• What it is: a light, sweet US crude.
• Where it trades: the main futures contract is listed on NYMEX, part of CME Group.
• Contract size: 1,000 barrels, priced in US dollars and cents per barrel.
• Settlement: physically delivered at Cushing, Oklahoma, a large storage and pipeline hub. Someone holding a long contract at expiry has to take delivery of real oil there, which matters a great deal, as April 2020 showed.

Brent

• What it is: a benchmark originally based on a North Sea field, now based on a basket of North Sea and other grades (WTI Midland crude was added to the Dated Brent assessment in 2023).
• Where it trades: the main futures contract is listed on ICE Futures Europe.
• Contract size: 1,000 barrels, priced in US dollars per barrel.
• Settlement: cash-settled against an index at expiry, with an option to convert to a physical position through an exchange-for-physical arrangement.

Brent is widely used as the reference for internationally traded crude, while WTI reflects conditions in the US market and especially at Cushing. The two usually move together, but the gap between them (the Brent–WTI spread) changes with US production, pipeline and export capacity, shipping costs and local storage. When news headlines say "oil rose 2%", check which benchmark they mean; the moves are often similar but not identical.

Why the price is in dollars

Both benchmarks are priced in US dollars. That has two consequences for traders outside the US. First, a stronger dollar makes oil more expensive in other currencies, which can weigh on demand at the margin, so oil and the dollar sometimes move in opposite directions, though the relationship is loose and changes over time. Second, if your trading account is in euros or pounds, your profit and loss on an oil position is calculated in dollars and then converted, adding a currency element. The guide to currency conversion and account base currency covers how brokers handle that.

What moves oil prices

Oil is a physical commodity with a slow-moving supply side and a demand side tied to the global economy. That combination produces long periods of relatively calm trading broken by sharp moves when expectations about either side shift.

Supply: OPEC+ and producer decisions

The Organization of the Petroleum Exporting Countries (OPEC), founded in 1960, coordinates oil policy among its members. Since late 2016, OPEC has worked with a group of non-member producers, including Russia, in an arrangement widely known as OPEC+. The group periodically agrees production targets, and announcements of cuts, increases or extensions can move prices sharply, especially when they differ from what the market expected. As with central bank decisions, the surprise matters more than the headline: a cut that was widely reported in advance may barely move price.

Other supply influences include US shale output, which can respond to prices within months rather than years; outages from conflict, sanctions, hurricanes or maintenance; and decisions to release or refill strategic petroleum reserves held by governments.

Demand: growth, seasons and expectations

Oil demand broadly tracks economic activity: transport, industry, petrochemicals and aviation. Data that changes the outlook for growth in large consumers such as the United States, China, Europe and India can move oil, as can shocks to travel, as in 2020. There are seasonal patterns too, such as summer driving demand for petrol in the US and winter heating demand for distillates, but these are widely known and usually priced in well ahead of time.

Weekly inventories: API and EIA

US inventory data is the most regularly scheduled market-moving release for crude.

• API: the American Petroleum Institute publishes a weekly industry estimate of US crude and product stocks, normally on Tuesday afternoon New York time.
• EIA: the US Energy Information Administration publishes its Weekly Petroleum Status Report, normally on Wednesday at 10:30 New York time (shifted when there is a US public holiday). It covers crude stocks, petrol and distillate stocks, refinery utilisation, production, imports and exports, and stocks at Cushing.

Traders compare each figure with the consensus forecast. A larger-than-expected build in crude stocks is generally read as a sign of weaker demand or stronger supply; a larger-than-expected draw as the opposite. The reaction depends on the detail, though: a crude build alongside large product draws can be read quite differently from a build across the board. Spreads often widen around the release and price can jump in seconds, so the same caution applies as with major economic data. The approach in how to use an economic calendar works for oil releases too.

Geopolitics and risk sentiment

Much of the world's oil passes through a few chokepoints, and several large producers are in politically unstable regions. Conflict, sanctions and shipping disruptions can add a risk premium very quickly, and remove it just as quickly when fears ease. Oil can also fall alongside equities in broad risk-off episodes when traders worry about global demand. These moves are hard to anticipate and often happen when markets are closed, which is why gap risk and weekend risk matters for anyone holding oil positions over a weekend.

Oil and currencies

Oil connects to forex through commodity-linked currencies. Canada is a major oil exporter and Norway a significant one, so the Canadian dollar and the Norwegian krone have historically shown some sensitivity to oil prices. The link is real but inconsistent; interest rates and other factors often dominate. The USD/CAD pair profile discusses this in more detail.

Futures, expiry and the curve

Because oil benchmarks are futures contracts, every price you see belongs to a specific delivery month. There is a December contract, a January contract, a February contract and so on, each with its own price. Lined up by expiry date, these prices form the futures curve. The general mechanics are covered in how commodity futures work; here is what matters for oil specifically.

Contango and backwardation

• Contango: later-dated contracts trade above nearer ones. This tends to happen when supply is ample and storage is filling, because someone holding oil for later delivery has to pay for storage, insurance and financing.
• Backwardation: nearer contracts trade above later ones. This tends to happen when supply is tight and the market pays a premium for oil available now.

The shape of the curve matters to anyone holding a position over time. If you stay long through repeated rolls in a steep contango, you keep selling a cheaper expiring contract and buying a more expensive later one; that drag accumulates even if the front-month price goes nowhere. In backwardation the effect works the other way. Neither is a reliable source of return, because the curve shape itself changes.

April 2020: when WTI went below zero

On 20 April 2020, the May 2020 WTI futures contract, which expired the next day, settled at about minus $37.63 a barrel on NYMEX, the first negative price since the contract was listed in the 1980s. According to the CFTC's interim staff report on the episode, it had settled at $17.73 on the previous trading day.

What happened is best understood through physical delivery:

1. Demand had collapsed during pandemic lockdowns, and storage across the US, including at Cushing, was filling fast.
2. A long holder of the May contract at expiry would have to take delivery of 1,000 barrels per contract at Cushing and find somewhere to put it.
3. Holders without access to storage needed to sell or roll before expiry. With few buyers able to take the oil, sellers ended up paying others to take contracts off their hands.
4. Later-dated contracts, including June, stayed positive. The negative price belonged to one contract in its final days, not to "oil" in general.

The lessons for retail traders are practical. Prices can do things that seem impossible. A product that tracks a futures contract inherits the behaviour of that contract, including near expiry. Some brokers changed their oil products or margin terms during that period, which is another reason to read the product terms. And stop-losses are not a guarantee of an exit price when a market gaps or trades through levels very quickly.

How retail traders get exposure to oil

Oil CFDs

A CFD on oil lets you take a long or short position on the price without owning a futures contract. Providers usually offer one or both of these designs:

• Futures-based (dated) CFDs: the CFD tracks a specific futures month and has an expiry date. Before expiry you either close the position or it is rolled to the next contract, depending on the provider's terms. Overnight financing is often not charged on these, because the cost of carry is already in the futures price, but the spread may be wider.
• Rolling or "cash" CFDs: the price is derived from the futures market but rolled automatically, with no fixed expiry for you. There is usually a daily financing charge, and at each roll the provider makes an adjustment to reflect the price difference between the old and new contract.

The roll adjustment is the part that confuses most people. If the next contract is $1.00 higher than the expiring one, a rolling CFD's quoted price jumps by $1.00 at the roll. To stop that jump from being a free gain for buyers and a loss for sellers, the provider credits or debits an adjustment equal to the price difference, so the position's economic value is unchanged at that moment. Some providers also charge a spread on the roll. The terms differ between providers, so read them before holding through an expiry. The guide to CFDs on stocks, indices and commodities compares how this works across asset classes.

Leverage limits

Under ESMA rules, applied across the EU, retail clients can use a maximum of 10:1 leverage on commodity CFDs other than gold, which means a 10% initial margin. The UK FCA applies the same cap. Professional clients may be offered more, but they also give up some retail protections. Negative balance protection applies to retail CFD accounts in the EU, meaning you cannot lose more than your account balance; it does not stop you losing all of it. The full rules are in ESMA leverage limits and negative balance protection.

Futures, options and exchange-traded products

Futures themselves are standardised exchange contracts with margin set by the exchange and clearing house, and smaller-size versions exist for some benchmarks. Options on oil futures are a further step in complexity. There are also exchange-traded products that hold oil futures; these face the same roll and curve effects, so their long-run performance can diverge sharply from the spot price headlines quote. The ETFs explained guide covers why tracking a commodity through futures is harder than tracking a share index.

A worked example: an oil CFD position

The numbers below are illustrative only, not current prices.

Suppose a provider offers a rolling Brent CFD where 1 contract equals 100 barrels (contract sizes vary; some providers use 1, 10 or 1,000 barrels). The quoted price is $80.00 bid / $80.04 ask.

• Opening a long position of 1 contract: you buy at $80.04. The position's notional value is 100 × $80.04 = $8,004.
• Margin at 10:1: 10% of $8,004 = $800.40. You can check this kind of figure with the margin calculator.
• Value of a $1 move: 100 barrels × $1 = $100. So a $1.00 move is about 12.5% of the margin you put up.
• Price falls to $77.50 bid: you close at $77.50. Loss = (80.04 − 77.50) × 100 = $254, before financing.
• Price rises to $82.50 bid: you close at $82.50. Gain = (82.50 − 80.04) × 100 = $246, before financing.

Notice the asymmetry created by the spread: the market has to move 4 cents in your favour just to break even. Now add a weekend gap. Suppose you set a stop at $78.00 on Friday, and a supply disruption over the weekend means the market opens on Monday at $75.00. A standard stop is triggered and filled at the next available price, around $75.00, so the loss is about $504 rather than the $204 you planned, more than 60% of the margin. This is why oil positions are usually sized well below the maximum leverage. The position size calculator helps you work back from the loss you are willing to accept to a contract size.

The roll, illustrated

Continuing the illustration: your rolling CFD is based on the January contract at $80.00 and rolls to February, which is trading at $79.20 (the market is in backwardation). After the roll, the quoted price falls to around $79.20. Because you are long 1 contract of 100 barrels, the provider credits a roll adjustment of (80.00 − 79.20) × 100 = $80 to offset the drop in the quoted price, possibly minus a roll charge. Your position is economically the same as before; only the reference contract has changed. If the market were in contango, a long would see a debit instead. Over many months, those adjustments are part of the real cost or benefit of holding the position.

Costs to watch

• Spread: oil spreads are generally wider than for major currency pairs and tend to widen around inventory data, OPEC+ meetings, the daily futures break and weekends. See why spreads widen.
• Overnight financing: charged on rolling CFDs, based on a reference interest rate plus the provider's markup. Over weeks, it adds up.
• Roll adjustments and roll charges: described above.
• Currency conversion: if your account is not in dollars.
• Trading hours: oil futures trade nearly around the clock on weekdays, with a daily break and a weekend close. CFD hours follow the underlying market. Check your provider's schedule.

Common mistakes

• Treating oil like a currency pair. Oil can move several per cent in a day, and contract specifications vary widely between providers. Calculate the value of a $1 move before you trade.
• Ignoring expiry. Holding a dated CFD into expiry, or not knowing when a rolling CFD rolls, leads to unexpected closures, charges or adjustments.
• Reading the inventory headline only. The market reaction depends on the full report and on expectations, not just whether stocks rose or fell.
• Underestimating gap risk. OPEC+ decisions and geopolitical events often land when the market is closed.
• Assuming a long-term rise in the oil price means a long position gained the same amount. Roll adjustments and financing can make the result very different from the change in the headline price.
• Using maximum leverage. At 10:1, a 10% adverse move wipes out the initial margin. Oil has had many 10% weeks.

Remember the broader context: most retail CFD accounts lose money, with broker disclosures typically in the 61–89% range. The risk warning and the guide to why most retail CFD traders lose are worth reading before trading any commodity on margin.

Frequently asked questions

What is the difference between WTI and Brent?

Both are light, sweet crude benchmarks traded as 1,000-barrel futures contracts priced in US dollars. WTI is a US crude delivered physically at Cushing, Oklahoma, and trades mainly on NYMEX. Brent is based on a basket of North Sea and other grades, trades mainly on ICE Futures Europe and is cash-settled. Brent is the more widely used international reference.

Why did oil prices go negative in April 2020?

It was one contract, the May 2020 WTI future, on the day before its expiry. Storage at the delivery point was close to full and demand had collapsed, so traders who could not take delivery paid others to take the contracts. It settled at about minus $37.63 on 20 April 2020, while later contracts stayed positive.

When is the weekly oil inventory report?

The EIA's Weekly Petroleum Status Report is normally released on Wednesday at 10:30 New York time, and the API's industry estimate normally on Tuesday afternoon New York time. Both shift around US holidays, so check the calendar each week.

What is contango in oil?

Contango is when later-dated futures trade above near-dated ones, usually because supply is ample and holding oil costs money. A long position that rolls forward through a contango market tends to lose a little at each roll, which is why a long-term oil holding can underperform the headline price.

What leverage can I use on oil CFDs?

In the EU and UK, retail clients are limited to 10:1 on commodity CFDs other than gold, so you need at least 10% of the position's value as margin. Using less leverage than the maximum is common practice because oil can move sharply.

Do oil CFDs expire?

Some do. Futures-based CFDs track a specific contract month and expire or roll on set dates. Rolling CFDs have no expiry for you but are adjusted each time the provider moves to a new underlying contract, and usually carry daily financing. The provider's product terms spell out which design you are trading.