Investing in Oil - FOREXYARD special report
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Investing in Oil as a spot comodity
Crude Oil has been a dominant factor in the increasingly volatile global markets lately, as the commodity makes historic climbs toward $100 a barrel. It is important for traders and investors to understand the causes involved in the changing oil prices and how they correlate with today's economy. We must identify the indicators that go into defining price levels and how economic, political and environmental news events affect actual prices.
Breaking the $100 barrier
Oil has been traded over the last several days at record highs of just over $98 per barrel and at lows of just under $94. These prices are at a near 100% premium as compared to the same point last year, when oil was traded for just above $50 per barrel. Movement in price is largely due to the growing demand for the commodity in comparison with its dwindling supply. Developing economic powers like China and India have greatly increased intake as their respective industrial sectors continue to blossom. The International Energy Agency (IEA) released a report Wednesday which stated that the growth of the aforementioned nations will increase the world's oil demands by more than 50% by 2030. When discussing demand it is imperative to touch upon the issue of supply, as prices have suffered from the continuing depletion of the world's oil reserves. In another report released this week by the IEA, supply numbers fell less that initially expected but could not prevent Oil prices from rising.
Political factors
As economic indicators are essential in determining any commodity price, it is the role of political events on prices that makes Crude Oil unique. With the lion's share of oil reserves coming from the Middle East, the ongoing conflicts in the region have contributed greatly to the volatile rise of oil. The Associated Press reported earlier this week that an oil pipeline was blown up in Yemen by a "group of saboteurs". As the incident is currently being investigated, investors speculate that any involvement by "terror groups" will send oil prices even higher than their current levels. In the greater global picture, rising political tensions between Iran, and to a lesser degree Venezuela (both of which have considerable reserves of crude) may push the price per barrel to a new record high. If for whatever reason potential political turmoil is avoided, the likelihood of a drop in prices is to be expected. For example, Monday saw a $2 drop in prices after the release of eight Turkish soldiers by Kurdish forces. This curtailed any likely action by Turkish forces in Northern Iraq, allowing production in the region to continue as normal. Political events are what make Oil an attractive investment for novice and intermediate level investors as a deep knowledge of economic indicators is not crucial.
Environmental factors
Another pertinent factor in determining the movement of oil prices, are environmental events. Such events are arguably the most important factors as oil is in its most basic form is a natural resource. Tuesday saw a rise to record prices of $97 a barrel as storms produced torrential conditions in the North Seas, forcing major oil producers to cut production. Both Conoco Phillips and BP were left with no choice but to evacuate workers from major pumping rigs, severely depleting the use of what has become one of the world's most influential oil-heavy areas. The North Sea accounts for close to 4.5 million barrels daily and can be deemed useless under harsh weather conditions. The growing change in world climate, coupled with the deflating oil reserves will continue to be a significant factor in oil prices.
The effect of oil prices on the Forex market is huge, as it correlates heavily to the behavior of the major currencies traded on a daily basis. As winter approaches, Crude Oil looks to be a lucrative commodity to keep an eye on, as is indicative by the trending price line towards levels in and around $100 per barrel.
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