Lesson 3 of 7 · 7 min
Oil and the commodity currencies
WTI and Brent, what a lot of oil means in barrels and dollars, what moves the price, and how oil links to the Canadian dollar and the Norwegian krone.
By the end you'll be able to
- Tell WTI from Brent and turn an oil position into barrels and dollars per $1 move
- Name the main drivers of oil, including OPEC+ decisions and the weekly US inventory report
- Explain how oil links to CAD and NOK, and why that link is loose
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On Sunday 2 April 2023, a group of OPEC+ producers announced a surprise cut in output. When markets reopened on Monday, oil was about 6% higher, and anyone short over the weekend met the new price all at once.
Two benchmarks, one barrel
Oil is quoted in US dollars per barrel. Your platform will usually offer two kinds of crude:
- WTI (West Texas Intermediate): US crude, priced from futures traded in New York and delivered in Cushing, Oklahoma. Platforms label it USOIL, WTI or CL.
- Brent: crude from the North Sea, priced from futures traded in London, and the main benchmark for oil traded around the world. It usually costs a few dollars more than WTI. Labels include UKOIL and BRENT.
The two move together most of the time. Pick one and learn its habits.
On CFDs a lot is often 1,000 barrels, so each $1 move is worth $1,000 per lot and $10 on 0.01 lots. Some brokers use 100 barrels or less, which changes every number below, so check the contract specification. Retail leverage in the UK and EU is capped at 1:10, lower than gold, because oil swings harder: a move of 2–3% in a day is ordinary.
Most oil CFDs follow a futures contract that expires each month, so the broker rolls them forward. Lesson 6 covers what that does to your chart and your position.
What moves oil
- OPEC+ decisions. The OPEC countries and allies such as Russia meet regularly to set output targets. Surprise cuts push prices up; signs of more supply push them down.
- Inventories. The US Energy Information Administration publishes stock figures every Wednesday at 10:30 New York time (usually 15:30 UK). A bigger build in stocks than expected tends to weigh on oil; a bigger draw tends to lift it.
- Growth and demand. A strong world economy, especially China and the US, uses more fuel. Recession fears hit oil quickly.
- Supply shocks. Conflict, sanctions or storms near producing regions can move prices in minutes, often at weekends.
- The US dollar. Oil is priced in dollars, so a stronger dollar can weigh on it.
Oil and the commodity currencies
Canada and Norway both export a lot of oil. When oil rises, they earn more and their currencies tend to strengthen. Because the US dollar comes first in USD/CAD, oil up tends to mean USD/CAD down. The same goes for USD/NOK; the Norwegian krone tends to follow Brent.
The link is loose. A central bank surprise, a swing in risk mood or a US jobs number can override oil for weeks. The lesson on commodity pairs covers AUD, NZD and CAD in more depth.
Try it
, left scale, right scale
The gap is the distance between the two lines as drawn, in right-scale points. It opens in the decoupled phase and does not close when the link returns: moving together again means moving in step, not catching up.
Correlation of daily moves in each phase (simulated: +1 = always together, 0 = no link)
What links them. Crude oil is Canada’s largest export, and almost all of it goes to the United States. When oil rises, each barrel earns more, Canada’s terms of trade (export prices compared with import prices) improve and the Canadian dollar tends to strengthen. On the real quote that shows up as a falling USD/CAD, so this chart plots CAD strength (1 ÷ USD/CAD) to make the link read the right way up.
Why the link breaks. In the shaded phase the Bank of Canada surprises with a rate cut. Oil keeps rising, but lower rates mean investors earn less on every Canadian dollar, so CAD weakens. A risk-off scare or a broad US dollar rally can do the same: USD/CAD is also a US dollar price, and it can rise whatever oil is doing.
What links them. Iron ore is Australia’s largest export, most of it shipped to China to make steel. Higher prices lift export income and the terms of trade (export prices compared with import prices), and the Australian dollar tends to rise with them, so AUD/USD and iron ore often move the same way.
Why the link breaks. In the shaded phase a risk-off scare hits markets. Investors sell the Aussie as a risk-sensitive currency and buy the US dollar as a safe haven, while iron ore holds up on steady Chinese demand. A surprise from the Reserve Bank of Australia, or a broad US dollar move, can break the link in the same way.
What links them. Dairy is New Zealand’s largest goods export, much of it sold to China at auctions held twice a month. Higher dairy prices lift farm incomes and the terms of trade (export prices compared with import prices), and the New Zealand dollar tends to follow.
Why the link breaks. In the shaded phase the Reserve Bank of New Zealand turns dovish and signals lower rates. Dairy keeps firming, but the kiwi falls because the rate story changes what investors earn on it. Risk mood and the US dollar side matter too: in a panic NZD/USD can fall from both ends at once.
Use the commodity as context, not as a signal. A commodity that agrees with your setup is a reason to trust it a little more, never a reason to risk more than your plan allows. Check the central bank, the risk mood and the US dollar first.
Simulated prices, not real data. The CAD line is plotted as 1 ÷ USD/CAD so it rises when the Canadian dollar strengthens. Tap Show the gap to see when the link breaks.
Tap Show the gap and compare the correlation boxes: in the shaded phase oil keeps going while CAD turns, which is when trading the currency off oil alone goes wrong.
Quick check
Quick check
Question 1 of 4
One lot of oil is 1,000 barrels. You hold 0.05 lots and oil falls $0.80. What is the result?
Question 2 of 4
The weekly US report shows stocks rose far more than expected. Which way does oil tend to lean?
Question 3 of 4
Oil rallies after an OPEC+ cut. What does USD/CAD tend to do?
Question 4 of 4
What is the most leverage a UK or EU retail client can use on an oil CFD?
Go deeper: Commodity currencies · USD/CAD trading guide · Forex trading costs