Home » Oil Trades
Category Archives: Oil Trades
There has been a lot of speculation as to what effect the upcoming election will have on the stock market. With the democratic candidate expanding her lead, it was thought that might be what has driven a recent increase in the market’s overall value. However, a story on CNN Money says oil prices are the biggest change factor and that is what is driving the American stock market, even more than the election could.
The story noted that the Fed may raise interest rates later this year, and that usually does have a small impact on the market. Other banks may remain as they are, and that is not expected to cause much change because it is well known beforehand.
The story says a move up in oil prices recently has given energy stocks a boost. Falling oil prices over the past couple of years have hurt major oil company’s stock values, and the rising prices may help them rebound.
OPEC nations have agreed to freeze production, or at least to not increase it, and that has led to an uptick in crude oil prices, which is a great relief to the oil companies. The rise in oil prices will also help infrastructure type companies, as well as the industrial sector, show more earnings.
Oil remains at more than $50 per barrel, and that is important from a psychological aspect, finance officials say.
But on Tuesday, Saudi Arabia said it hopes to actually cut back on production, and believes it may be able to convince other OPEC nations to do the same.
Other investors are pleased to see prices rise some, but they are not confident it will remain steady. There has been a lot of rising and falling oil prices, which adds instability to to the market, finance officials say.
Other financial experts believe prices are at a good level now. Prices are high enough to give energy companies their profits they need, and still low enough for consumers of gasoline to not feel the pinch of high gas prices.
Finding that sweet spot might help both the oil companies and the consumer, and that may not make the stock market rise sharply, but it would give it some stability regardless of what else happens.
While there are typically long periods of significant volatility in the financial markets across the globe, one small sector of the financial markets that has seen a lot of volatility as of late has been the oil markets. According to a recent news article (http://money.cnn.com/2016/08/15/investing/oil-prices-jump-opec-freeze/index.html) prices of oil, and particularly futures of crude oil contracts, have increased considerably in price over the past few days.
Midway through the trading day on August 15 the price of a barrel of oil for September delivery jumped to $45.50 per barrel, which was about a three percent increase over the prior trading day. This was the third consecutive day that saw a significant and similar jump in prices for future oil contracts. Overall, the price of oil had increased by about ten percent over the past three trading sessions alone.
The recent increase in oil prices comes after a significant decline in prices over the past year. The price of a barrel of oil had been cut by more than half compared to where it was just a couple of years ago. The price per barrel was very recently below $40 per barrel, which seemed to be a potential floor or stable place for the price of a barrel. There have been a number of rumors regarding why oil prices declined to begin with, which included unnecessary production of oil to make other energy sources seem less attractive than an affordable oil price.
While oil rallies are not that rare, they are typically driven by changes in demand and other factors that have a natural economic influence on the price of a barrel. However, this current rally seems to be based more on the expectation that more will be done by OPEC and oil-dependent nations to drive up the price of oil. Most specifically, it has been rumored that OPEC, Russia, Saudi Arabia, and other influential players in the oil industry could be a freeze on production, which would artificially drive down up the price of oil
The price of oil has recovered somehow from its recent lows of under $30 a barrel. Now, crude is trading at around $50. Still, it’s way down from its high of nearly $150 a few years ago. And the U.S. and Canadian based shale oil producers are suffering since their production costs are high.
Many of these companies have already cut down on production and laid off staff. Yet, there’s going to be more struggle as MarketWatch reports. Over long-term, oil is bound to rise as it is a scarce commodity, but in the shorter term, it may fall again. One of the reasons for its recent ascent is due to Canadian wildfires and Nigerian unrest, which are not necessarily what affects demand and supply fundamentals for long.
MarketWatch doesn’t expect investors to make substantial gains on oil as now it is likely to trade in a narrow range. On the other hand, traders who bet on very short-term swings can make profits as most of their bets are leveraged. This way, a 1% gain in price may translate into as much as 10%, or more, in gains.
While many oil trades are made with the futures contracts, or leveraged spot transactions, some traders choose leveraged oil Exchange-Traded Funds (ETFs) to make both long and short bets on oil.
While MarketWatch thinks the fun is over in this market for some time, no one can predict with certainty where the oil price is heading. For most of us, the consumers, the lower it is, the better.