Table of contents

1. Hot events affecting crude oil in 2022

2. Crude oil price performance and investment data in 2022

3. Analysis of crude oil investment in 2023 (including fundamental and technical analysis)

4. What are the ways of investing in crude oil?

5. Summary

1. Hot Events Affecting Crude Oil in 2022

Event 1: Russia-Ukraine War Conflict

War broke out between Russia and Ukraine over territorial issues.

Occurrence date: February 24, 2022

Results：

Gold soared - Due to the sharp rise in crude oil prices and the record highs of inflation, gold has become an important hedging tool.

Higher inflation - Ukraine is the granary of Europe, its corn and wheat exports account for more than 10% of the world. The war situation has caused the export of Ukrainian agricultural products to decrease, the price has soared, and the price of valuable energy has also risen, which eventually caused the inflation level of many European countries to hit new highs.

Crude oil soared - Due to concerns that Russia would cut off energy supplies to Europe, the prices of natural gas, oil and other energy sources rose sharply after the outbreak of the war. The impact of high energy prices has since spread to other areas of the economy, pushing up transportation costs and food prices, which eventually led to higher inflation in many countries around the world.

Event 2: USD Rate Hike 

In order to curb the high level of inflation in the country, the Federal Reserve began to raise interest rates.

Occurrence date: March 2022

Results：

The three major stock indexes plummeted - After the interest rate hike, the dollar hot money quickly withdrew from the capital market, causing the three major U.S. stock indexes to plunge.

U.S. dollar rise - Rising interest rates lead to higher borrowing costs in dollars, causing the dollar to skyrocket.

Crude oil plummeted-The interest rate hike led to the scarcity of US dollars in the market, and the price of the US dollar rose. The investment market sold crude oil and switched to US dollars, causing the price of crude oil to continue to fall.

2. Crude Oil Price Performance And Investment Data in 2022

Crude oil prices in 2022 so far:

Russia-Ukraine War Conflict

From 87.259 point on February 18, 2022 to 126.365 on March 8, 2022, the fluctuation point is 39.106, and the cumulative increase is 44.8% (subsequently affected by the US dollar interest rate hike)

Lowest price on February 18: 87.259

Highest price on March 8: 126.365

Index volatility: 39.106

Cumulative total increase：44.8% 

USD Rate Hike 

Since March 8, crude oil has fallen from the lowest point of 126.365 to 70.246 point, with a fluctuation of 56.119 points, and a cumulative decline of 44.4%.

Highest price on March 8: 126.365

Lowest price on December 9: 70.246

Index volatility: 56.119

Cumulative total decline：44.4%

3. Analysis of Crude Oil Investment in 2023

Fundamental Analysis:

1. From A Short-term Point of View

From the perspective of short-term investment preferences, the Russo-Ukraine war is undoubtedly one of the most concerning events in the world. As the saying goes, invest in gold in prosperous times, and stockpile in oil in troubled times. Although it is not typically a chaotic time nowadays, there are frequent incidents of conflicts between countries. At the same time, with the conflict between Russia and Ukraine as the fuse, it is inevitable that investors will worry that the currency in their hands will not be able to preserve value. Therefore, as a hard investment product, the strategic value of crude oil is much higher than that of currency.

2. From A Medium-term Point of View

From the perspective of the medium-term supply and demand relationship, we have rationally analyzed that, except for Europe, the reserves of crude oil in other countries are slowly declining. This is due to the shutdown of the manufacturing industry, the decline in the number of starts, and the decline in global demand for commodities after the impact of the epidemic. Therefore, in the medium term, the supply of crude oil exceeds demand, and the price will drop further.

3. From A Long-term Point of View

From the perspective of long-term investment value, since the outbreak of the epidemic in 2019, global import and export trade has been hit hard. Coupled with the trade protectionism pursued by various countries, the prices of all products, including energy trade, have experienced relatively large fluctuations. Coupled with geopolitical conflicts, the Eurasian plate was torn apart. As a vital strategic material and energy security material, crude oil cannot be transported to Europe, causing an energy crisis in Europe. Once the epidemic weakens, in order to restore the economy and production, countries will experience a blowout increase in the demand for crude oil. Therefore, in the long run, the demand for crude oil will exceed the supply, and the price will not only reach the previous high, but even hit a new high.

Technical Analysis:

From the perspective of technical analysis, although the decline of crude oil touched the support level of 70 points on December 9, at the same time, it also completed a wave of high-quality rebound in the following three days. But if we look at the MA moving average, we can clearly see that the price of crude oil has never broken through the 20-day moving average. In addition to the breakthrough attempt on December 14 we just mentioned, the crude oil index has tried to break through from December 1 to December 5, and none of them succeeded. Therefore, it can be proved that the short-selling pressure at the top is very strong, and there is a high probability that oil prices will continue to fall in the market outlook.

How Should We Operate in 2023?

This mainly depends on two aspects. One is whether the epidemic is alleviated. As far as the current situation is concerned, mainland China has also joined the global epidemic liberalization policy, which will directly impact the manufacturing market. In a short period of time, the prices of various materials will rise significantly, and the demand for such materials will directly drive the demand and consumption of crude oil. Oil prices will experience a wave of price increases in the first half of 2023. The other depends on whether the war between Russia and Ukraine will continue. On December 14, the Russian side stated that it has never considered a ceasefire during the New Year. This sends a key signal that Europe must maintain a hostile relationship with Russia for the sake of Ukraine, so the energy crisis will continue until 2023. Combined with the above technical analysis, there is a high probability that crude oil will be adjusted downward by about 10% and try to break through again. In line with the strong demand in 2023, the upward price of crude oil can reach at least the previous high of 126 points, and it is conservatively estimated that the room will reach 85%-95%.

4. What Are The Ways of Investing in Crude Oil?

1. Invest in listed companies

Generally, the most direct way is to invest in listed companies that invest in crude oil, because rising crude oil prices are bullish for crude oil companies. You can directly invest in the stocks of crude oil companies. For example, Taiwan stocks can invest in Formosa Plastics; if it is US stocks, you can choose to invest in Ashson Mobil, Chevron, etc.

Advantages:

a. Can be traded online, easy to invest

b. Financial security

Disadvantages:

a. Crude oil prices cannot be directly reflected on listed companies, and profit margins will be greatly reduced

b. Cannot directly invest in crude oil, you need to open a corresponding stock account before trading

c. Troublesome account opening, short transaction time, daily transaction time is only 4 hours

d. Can only buy up, not down, and you can only accept losses when crude oil falls

e. Can't use leverage to make big gains

Profits：

If the price of crude oil rises by 90% in 2023, reflected in the crude oil listed companies in the stock market, there will be a 10%-15% increase. If we invest $5000, the profit will be approximately: principal * increase = profit: 5000 * 10% = $500.

2. Invest in crude oil ETFs

There are basically two types of oil ETFs:

One is a "futures" commodity that tracks an oil index, such as the Yuanta S&P Oil ETF. The basic operation method is to invest our money in oil futures, so the main purpose of investing in this type of ETF is similar to investing in oil futures. Basically, it is the difference in the price of earning oil. The difference from futures is mainly the difference in the investment threshold. Since futures start at least 100,000, it is not suitable for ordinary investors.

Another type of ETF is a "basket of stocks" that we often buy directly. For example, State Street SPDR Energy Index Fund (XLE) has invested in many famous international oil companies, such as Exxon Mobil, Chevron and so on. Because the long-term yield of this type of IOC is quite high and stable, XLE's long-term yield is around 3.5%, so it is very suitable for long-term investors who like to receive dividends.

Advantages:

a. Liquidity is better than stocks

b. Backed by fund companies, it is safe and secure

Disadvantages:

a. The price of crude oil cannot be directly reflected on the ETF, and the profit margin will be greatly reduced

b. You cannot directly invest in crude oil, you need to open a corresponding ETF account before trading

c. It is troublesome to open an account, and the transaction time is short, only 4 hours a day

d. You can only buy up, not down, and you can only accept losses when crude oil falls

e. You can't use leverage to make big gains

f. The entry threshold is high, starting with a minimum of $50,000

g. Additional handling fees, transaction taxes and management fees are required

Profits：

If the price of crude oil rebounds by 90% in 2023, it will be reflected in the ETF, and there will be a 5%-10% increase. If we invest $5000, the profit will be approximately: principal * increase = profit: 5000*5% = $250.

3. Invest in crude oil futures

Crude oil futures is one of the mainstream ways to invest in crude oil, mainly because many large enterprises and trading companies use oil as their business reserves. The purpose of choosing crude oil futures investment is to hedge risks and hedge value. Therefore, the oil futures trading market is quite active. In addition, the low commission and easy leverage of futures are also quite suitable for short-term traders who want to earn a price difference by trading oil.

Advantages:

a. Liquidity is better than ETF

b. You can use 5 times leverage to make a big fortune

c. Two-way trading can be shorted, with more opportunities

d. Low handling fee

Disadvantages:

a. Low leverage ratio

b. The transaction threshold is high, starting with a minimum of $50,000

c. Futures contracts have expiration restrictions, and long-term holding requires continuous renewal

d. It is complicated to open an account and requires capital verification

e. Additional handling fees, transaction taxes and management fees are required

Profits：

If calculated according to the 90% rise in crude oil price in 2023, reflected in crude oil futures, if we invest $5000, the profit will be approximately: principal * increase * leverage = profit: 5000*90%*5=$22500.

4. Invest in crude oil CFDs

Crude oil CFD investment is a new investment method that can buy crude oil through overseas securities companies. It is a relatively simple way, and it is also a crude oil investment tool that we recommend. CFD can earn price difference through global crude oil fluctuations, because it does not involve direct purchase of crude oil, so there is no quota limit.

Advantages:

a. Higher leverage, with greater profit margins

b. T+0 settlement, you can enter and exit the market 24 hours a day

c. Support two-way operation, double the opportunity to make money by doing long and short

d. Complete international crude oil market quotations, zero delay, and more transparent prices

e. It is easy to open an account, and there is no capital requirement, and it can be operated with $100

f. Free handling fee, no transaction cost

g. Specially approved unit of financial institutions, fully supervised funds, safe and guaranteed

h. Secure deposit and withdrawal via mobile phone, safe, free and fast

Disadvantages:

Due to the high degree of trading freedom and high leverage ratio, the risk rate is higher than other products.

Profits：

If calculated according to the 90% increase in crude oil price in 2023, and reflected in the crude oil CFD transaction, if we invest $5000, the profit will be approximately: principal * increase * leverage = profit: 5000*90%*33=$148500.

5. Summary

The investment value of crude oil is often reflected during the war. Although the Russia-Ukraine War lasted for a whole year, several major oil-consuming countries have not yet joined the war.

As the Russo-Ukrainian war advances layer by layer, there is a high probability that NATO will join the battlefield in the later stage. At that time, the confrontation between the two countries will evolve into a camp war involving countries all over the world, and the military demand for crude oil will increase in a large area.

Judging from the current low price of crude oil, the future upside potential is huge. And as investors, we need to choose investment products that suit us according to our actual needs.

Some products are good for hedging, and are the most ideal investment products for operational investors;

And some products only care about storage, suitable for investors who don’t value profits and keep value safely.

There are also products with high leverage and large profits, but the corresponding high risk rate is suitable for investors who like to invest in gaming.

There are no good or bad products, the one that suits you is the best.