Forex trading,foreign exchange market 9

Where does oil go after being refined?

The Three Stages of Refining

Crude oil needs to be processed before it can be used, Three major types of operation are performed to refine the oil into finished products: separation, conversion and treating. 

In the first step, molecules are separated through atmospheric distillation (i.e. at normal atmospheric pressure), according to their molecular weight. During the process, which is also known as topping (refining), the oil is heated at the bottom of a 60-meter distillation column at a temperature of 350 to 400°C, causing it to vaporize. The vapors rise inside the column while the heaviest molecules, or residuals, remain at the bottom, without vaporizing. As the vapors rise, the molecules condense into liquids at different temperatures in the column. Only gases reach the top, where the temperature has dropped to 150°C. The liquids, which are become increasingly light the higher they are found in the column, are collected on trays located at different heights of the column. Each tray collects a different petroleum cut (fraction) , also known as a petroleum cut, with highly viscous preservation (hydrocarbons) like asphalt (bitumen) at the bottom and gases at the top. 

Crude oil is often a dark, sticky liquid that cannot be used without changing it. The first part of refining crude oil is to heat it until it boils. The boiling liquid is separated into different liquids and gases in a distillation column. These liquids are used to make petrol, paraffin, diesel fuel etc.

Crude oil is a mixture of different chemical called hydrocarbons. The boiling oil turns into a mixture of gases in the column. The gases flow up the column which is hottest at the bottom and cooler at the top. The gases cool down as they go up the column until they condense (turn back into liquid again). The separated liquids and gases, after cleaning and further processing, are used to make many products.

The heavy residuals left over after atmospheric distillation still contain many products of medium density. The residuals are transferred to another column where they undergo a second distillation to recover middle distillates like heavy fuel oil and diesel.


There are still many too heavy hydrocarbon molecules remaining after the separation process. To meet demand for lighter products, the heavy molecules are “cracked” into two or more lighter ones.
The conversion process, which is carried out at 500°C, is also known as catalytic cracking because it uses a substance called a catalyst to speed up the chemical reaction. This process converts 75% of the heavy products into gas, gasoline and diesel. The yield can be increased further by adding hydrogen, a process called hydrocracking, or by using deep conversion to remove carbon.
The more complex the operation, the more it costs and the more energy it uses. The refining industry’s ongoing objective is to find a balance between yield and the cost of conversion.


Treating involves removing or significantly reducing molecules that are corrosive or cause air pollution, especially sulfur. European Union sulfur emission standards are very stringent. Since January 1, 2009, gasoline and diesel sold in Europe cannot contain more than 10 parts per million (ppm), or 10 milligrams per kilogram, of sulfur. The purpose of these measures is to improve air quality and optimize the effectiveness of catalytic converters used to treat exhaust gas. For diesel, desulfurization, or sulfur removal, is performed at 370°C, at a pressure of 60 bar. The hydrogen used in the process combines with the sulfur to form hydrogen sulfide (H2S), which is then treated to remove the sulfur, a substance used in industry.

Kerosene, butane and propane are washed in a caustic soda (sodium hydroxide) solution to remove thiols, also known as mercaptans. This process called sweetening.

Treating Automotive Fuels

Automotive fuels must also be treated to increase their octane rating, which is a measure of a fuel's resistance to detonation, based on a scale of 0 to 100. (Engine knocking occurs when the fuel in an internal combustion engine ignites spontaneously with no input from the spark plug.) If the octane rating isn’t high enough, the engine will eventually be irreversibly damaged. To avoid this, it is necessary to boost the octane rating to 95 or 98.
The process used to produce high-octane products is called catalytic reforming. The chemical reactions during catalytic reforming, which uses platinum as a catalyst, occur at 500°C and a pressure of 10 bar. They convert some of the naphthenic hydrocarbons (saturated cyclic hydrocarbons) into aromatic hydrocarbons (unsaturated cyclic hydrocarbons), which have a much higher octane rating. Other chemical reactions, such as alkylation, also improve the octane rating.

Liquids from refining oil still have to be changed to make them more useful. Sometimes it's to make them clean enough to be used. Sometimes it's to turn some of the unwanted liquids into things people want to buy.

The heavier liquids are in less demand from customers so are turned into lighter products that are in demand. One of the processes is called catalytic cracking. It breaks down some of the heavy liquids from the distillation column.

The heavy liquids are changed into simple and more useful liquids and gases. Cracking is just one of many chemical changes in an oil refinery.

Refined Petroleum Products and Their Uses

Each refined petroleum product obtained from crude oil has a specific use:
  • Liquefied petroleum gas (LPG), also known as butane and propane, is used as an automotive fuel or packaged in bottles and used for household purposes.
  • Gasoline and diesel are used as fuels for motor vehicles.
  • Kerosene is used as jet fuel.
  • Naphtha is a major petrochemical feedstock.
  • Heating oil is used to heat buildings.
  • Base oils are used to make lubricants.
  • Asphalt, sometimes called bitumen, is used to pave roads.

What is the best trade setup for trading crude oil to get a consistent target of 20 per lot?

Why Trade Crude Oil?

Crude oil is the world economy’s primary energy source, making it a very popular commodity to trade. A naturally occurring fossil fuel, it can be refined into various products like gasoline (petrol), diesel, lubricants, wax and other petrochemicals. It is highly demanded, traded in volume, and extremely liquid. Oil trading therefore involves tight spreads, clear chart patterns, and high volatility.
Brent crude is the world’s benchmark for oil with almost two thirds of oil contracts traded being Brent oil. WTI is America’s benchmark oil, it is a slightly sweeter and lighter oil compared to Brent.
WTI trades on CME Globex: Sunday - Friday, 6:00 p.m. - 5:00 p.m. (with an hour break from 5:00 p.m. to 6:00 p.m each day) while Brent trades on ICE: Sunday - Friday - 7:00 p.m. - 5:00 p.m.

Crude Oil Trading Basics: Understanding What Affects Price Movements

When trading oil, the two major focal points is supply and demand. Whether there was an economic report like a news event or press release or tensions in the Middle East, the two factors that will be taken into consideration is how supply and demand is affected, because this will affect the price.
Supply Factors
  • Outages or maintenance in key refineries around the globe, whether it’s the Forties pipeline in the North Sea or the Port Arthur refinery in Texas, must be monitored because of the effect it can have on the supply of oil. War in the Middle East leads to concerns about supply. For example, when the Libyan Civil war began in 2011, prices had seen a 25% rise from in the space of a couple of months.
  • OPEC (Organization of the Petroleum Exporting Countries) production cuts or extensions lead to changes in the price of oil. For example, back in 2016 when the cartel had announced their decision to curb global supply by 1.9%, the price of oil has risen from $44/bbl to as much as $80/bbl.
  • Oil Suppliers: Similarly, with understanding the importance of OPEC, it is also worth knowing who the top global oil suppliers are.
Demand Factors
  • Seasonality: Hot summers can lead to increased activity and higher oil consumption. Cold winters cause people to consume more oil products to heat their houses.
  • Oil Consumers: The largest consumers of oil have typically been developed nations such as the U.S. and European countries. However, in recent times there has been a surge in oil consumption in Asian countries, namely China and Japan. As such, it is important for traders to pay attention to the level of demand from these nations, alongside their economic performance. Any slowdown could affect oil prices and demand may fall. 

How to Trade Oil: Top Tips and Strategies

Expert oil traders generally follow a strategy. They will understand the fundamental factors that affect the price of oil and use a trading strategy that suits their trading style. Each trading strategy is different, risk management is an important component to consistent trading, like the effective use of leverage and avoiding top trading mistakes.
A comprehensive crude oil trading strategy could include:
  1. Fundamental Analysis
  2. Technical Analysis
  3. Risk Management
Once a trader understands the fundamental supply and demand factors that affect the price of oil, he/she can look for entries into the market using technical analysis. Then, when a buy or sell signal has been identified using technical analysis, the trader can implement the proper risk management techniques. Let’s go through an example...
On the 30th of November 2017, OPEC and Russia agreed to extend an oil production cut, which lead to a decrease in supply. This is the fundamental analysis a trader would need to incorporate into their strategy in order to identify buy signals in the market.


The next step would be to analyse the chart using technical analysis. There are a variety of technical indicators and price patterns a trader can use to look for signals to enter the market. There is no need to use many technical indicators, one that you understand well will do the job.

In the chart above the Relative Strength index (RSI) is the main technical indicator used to look for a buy signal. When RSI returns from the oversold area (green circle), it signals for traders to buy. Given that this technical analysis is in-line with our fundamental analysis a trader could execute the trade and set reasonable stop-losses and take-profits.
To manage risk, the trader could look to set a take-profit above the recent high and set a stop-loss at the recent low.
This sample trade would illustrate a positive risk to reward ratio. We researched millions of live trades in a variety of markets and discovered a positive risk to reward ratio was a key element to consistent trading. Additionally, at DailyFX, we recommend risking less than 5% of capital on all open trades.
To advance your crude oil trading and gain an edge over the market, view our quarterly forecast for oil.

Advanced Tips for Oil Trading

Advanced traders can use alternative information when placing a trade. Traders sometimes look at the futures curve to forecast future demand, CFTC speculative positioning to understand the current market dynamic and can use options to take advantage of forecasted high volatility moves or to hedge current positions.
Futures Curve: The shape of the futures curve is important for commodity hedges and speculators. As such, when investors analyse the curve, they look for two things, whether the market is in contango or backwardation:
  1. Contango: This is a situation in which the futures price of a commodity is above the expected spot price, as investors are willing to pay more for a commodity at some point in the future than the actual expected price. This typically signals a bearish structure.
  2. Backwardation: This is a situation when the spot price is above the forward price for a commodity. This typically signals a bullish structure.                                                                                          
    CFTC/Speculative Positioning:
    The Commodity Future Trading Commission Report (CFTC) is important when trading crude oil futures. It provides traders with information related to market dynamics and therefore s can be a good way to gain a sense of where oil prices are heading. Movements in the CFTC managed money net positions typically precede the move in oil prices.
    Trading via futures and options
    Buying futures and options, a trader must use the right exchange for the oil benchmark he/she wants to trade. Most exchanges have criteria for who is allowed trade on them, so the majority of futures speculation is undertaken by professionals instead of individuals.
    Oil Investing
    Instead of trading the individual market, a trader can get exposure to oil through shares of oil companies or through energy-based exchange traded funds (ETFs). The price of oil companies and ETFs are heavily influenced by the price of oil, which can sometimes offer better value.
    Major Oil/Energy ETFs:

    Energy Select Sector SPDR (XLE) 

    Vanguard Energy ETF (VDE)
    United States Energy Fund (USO)

Key Reports Every Oil Trader Should Follow

Weekly updates on the amount of crude oil inventories in the U.S. are very important pieces of data for oil traders - which frequently leads to a bout of volatility. The inventory data is an important barometer for oil demand. For example, if weekly inventories are increasing, this would suggest that demand for oil is dropping, while a drop in inventories suggests that oil demand is outstripping supply.
  1. American Petroleum Institute (API): The API produces a weekly statistical report, which highlights the most important petroleum products that account for more than 80% of total refinery production, while crude oil inventories are also included. This data is typically released on Tuesday at 16:30ET/21:30 London time.
  2. Department of Energy (DoE/EIA): Much like the API report, the DoE report provides information on the supply of oil and the level of inventories of crude oil and refined products. This is announced on Wednesday at 10:30ET/15:30 London time. 



What are some of the world's other most worthless currencies?

The falling value of the dollar is a common topic—and not just in economic or political circles. Whether your grandma tells you what she used to be able to buy for a nickel, or you reflect on how cheap your rent was five or 10 years ago, concerns about what a dollar buys these days are becoming as common as dollars, what with how many of them the Federal Reserve seems to be printing these days.

In spite of this, the U.S. dollar remains a relatively valuable currency, especially compared to these.

1 Iranian Rial 

Iran has been one of the biggest travel stories of the past few years, a trend that's almost certain to continue into the future, whether certain world leaders like it or not. Unfortunately, barring some action by the country's parliament to re-denominate its currency, the Iranian rial is likely to remain a poor performer, even as the country's tourism stock rises. As of writing, the Iranian rial trades at about 42,600 to one US dollar, although money changers on the street will usually give you a bit more than that when presented with crisp, new $100 notes.
In addition to being one of the world's most worthless currencies, the Iranian rial is also one of its most confusing. Locals often quote prices in toman, which is simply an Iranian rial with one zero removed. The end result is numbers that are still too high for sanity—7,000 of any currency for a cup of coffee boggles the mind.

2 Vietnamese Dong

Vietnam's currency is worth slightly more than Iran's, with each US dollar buying you about 22,900 dong as of June 2018. One important difference between these currencies—between the countries, really—is that Vietnam's ​banking system is connected to the rest of the world's, unlike Iran's. This means that you can become a millionaire instantly by withdrawing currency from a Vietnamese ATM.
Specifically, withdrawing $50 worth of dong (1,133,425 dong) will make you a millionaire, at least as far as Vietnamese money is concerned.
While Vietnamese notes as small as 500 dong (2 cents) used to circulate, the smallest Vietnamese bill you can officially get these days is 10,000 dong, which is worth a little less than 50 cents.

3 Indonesian Rupiah 

Another Asian country with a relatively worthless currency is Indonesia. Although Indonesia is rapidly developing, leading to quickly rising costs in tourism hot spots like Bali and Yogyakarta, the rupiah still remains one of the world's weakest currencies. Currently, the USD-IDR exchange rate is about 14,200, which means that you could end up dropping six figures for your next Indonesian lunch.
Indonesia is an increasingly tech-friendly country, however, which means that you won't have to use cash all the time, as you often do in Iran and Vietnam. More and more merchants are accepting credit cards, while the introduction of Uber in many major cities not only means an end to haggling about prices for transportation, but eliminates the chances that you'll be scammed due to miscounting your extremely big bills.

4 Laos Kip

Just because a currency is worthless doesn't mean it's cheap to travel in the country it's used for. For example, while the Laotian kip is significantly less valuable than the baht of its neighbor Thailand (1 USD=8390 LAK, while 1 USD=33 THB), many travelers find prices in Laos higher, in spite of Laos being a markedly poorer country than Thailand.
Of course, there's a secondary reason for this. Due to the low value of the kip, Laos' economy is partially "dollarized," meaning that prices are often given in dollars and dollars are frequently accepted for payment.

5 Paraguayan Guarani

In addition to the fact that Paraguay's landlocked between significantly more popular countries (although you can visit the famous Iguazu Falls via Paraguay, almost every traveler goes through Argentina or Brazil), the Paraguayan guarani is one of the world's most worthless currencies. Specifically, each trades at about 5,700 to the dollar, which means that in spite of bootlegged electronics in Ciudad del Este being cheap, you'll have to shell out hundreds of thousands (or even millions!) of guarani in order to be able to buy them.

6 Colombian Peso

Another nearly worthless currency in South America is that of Colombia. To be sure, while the Colombian peso is worth slightly more than the guarani—$1 exchanges for around 2,900 Colombian pesos, making it around twice as valuable as the Paraguyan guarani—tourists are simply likelier to visit Colombia than they are to visit Paraguay, what with world-class destinations like Cartagena, MedellĂ­n, and the Coffee Triangle.
A fun fact about pesos is that they're the currency of a large number of Latin American countries, including Argentina and Mexico. A less fun fact is that they all have different exchange rates, so familiarize yourself with the exchange rate of the peso you'll be using to avoid getting hosed.

7 Tanzanian Shilling

Another poor-ish country with a worthless currency that still manages to be rather expensive is Tanzania, whose shilling equals a dollar only when you have 2,275 of them. Then again, if you've ever traveled in sub-Saharan Africa (one of the world's most expensive and lowest-value places to travel, in spite of the poverty most locals experience), this won't surprise you.
To be sure, what might come as a greater surprise (or, at least, a valuable insight) is why so many African countries are expensive, whether or not theirs are among the world's most worthless currencies. The problem is two-fold.
Since many African countries don't have middle classes, the travel industry remains likewise split between extremely high luxury and extremely low budget—you can travel like a local, as long as you don't mind waiting hours or even days for a cramped bus that's likely to break down.
The second reason Africa is an expensive travel destination is that within the travel industry, there isn't a lot of competition. Many of the most popular safari destinations have only a few companies operating tours, while even large cities like Nairobi have so few luxury hotels than none are forced to compete for your business.


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