Spread Trading Crude Oil - 6 Week Look at Supply and Demand
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There have been many column inches written about the current Crude Oil Bull market. However even during this Bull run there have been many ups and downs. Especially during the last 4 to 6 weeks.
So we thought we would have a look at recent events that have actually made a difference to the prices at Financial Spreads.
- One of the basic underlying trends has been the strength of the dollar. This is not a surprise. Crude Oil in traded in dollars per barrel, all things being equal, Crude Oil tends to follow the US Dollar exchange rates trends. If the US Dollar depreciates in value against the Euro and / or Pound then the price of Crude will often go up and vice versa. In the last month the US Federal Reserve hinted at raising interest rates = possibility of a stronger dollar = crude oil price decrease
- The European Central Bank and Bank of England then stated that fighting inflation was more important than growth = possible interest rates rises in Europe = stronger pound and euro = weaker dollar = crude oil price up
- The flight to safety. Normally that means gold, in this case, black gold. In times of uncertainty investors often put their money into gold. In this case with the price of gold looking high and possibly on the way down investors have put their money, as one would expect, in to bonds. They have also been speculating on Crude Oil. That has led to upwards pressure on the price
- A well known analyst or bank predicting a change in price can have a strong affect. In this case Goldman Sachs energy strategist Argun Murti warned Nymex Crude could have a ‘super spike to $200’. It was Murti who correctly predicted that crude would hit $100 per barrel. His prediction has meant more upwards pressure on the price
- Long-terms trends and more speculators. Crude prices have now risen by 25% in the last four months and 400% since 2001. Many speculators will jump on the band wagon
- News of lower Crude Oil subsides. As a number of countries in Asia said they were cutting back on local subsidies that decreased expected depend = fall in crude oil trading prices
- Israel made hawkish comments about Iran. Conflict in the Middle East causes supply problems. Therefore this increased threat to supply pushed Crude up
- Economic Indicators, the weekly US crude oil inventory numbers usually come out at 1530 (BST) on a Wednesday. If the storage numbers are lower than expected = lower supply = increased price and vice versa
- Consumptions numbers are clearly also important. Lower than expected consumption = lower demand = lower price
- OPEC. In May OPEC said that there were sufficient supplies of crude oil and that an increase in production was unlikely. That led to supply fears and helped push crude oil to a record high in excess of $135
- A slowing global economy. No surprises here. There is a lot of press about a slowing economy and when that is coupled with Company Results showing a slow down and/or Economic Indicators showing a possible slow down = lower consumption going forward = lower demand = lower price
- An Earthquake in China sparked energy shortage fears after several hydro-electric power stations were damaged = higher demand for oil = higher crude oil price
- The Saudis said that they would increase oil production = higher supply = lower price
- A less well known area surfaced in a report in the Financial Times, news of refineries paying record premiums for high quality crude oil. In this case the Refineries are paying a higher price for current supply than the futures prices. The FT reported some refiners paying $5-6 on top of the traded price for high quality oil. Of course this is a difficult area to take into account in your speculating. There is a lot of data regarding the prices traded at ICE (Brent Crude) and Nymex (US Crude) but data regarding refinery pricing is not as widely available
It has been a fascinating six weeks however the above highlights the risks of spread betting on crude. The markets are volatile. And the market does not always follow the rules eg the dollar can drop and the price of crude oil can still go up.
However the above also highlights why spread betting on crude oil is so popular. There are many opportunities to make a profit (and loss). With spread betting you can bet on the price to go up or down.
Simple answers to common Crude Oil Trading questions:
Q) Where can I Spread Bet on Crude Oil?
Q) Where can I Trade Crude Oil for Free?
Q) How to Spread Bet on Crude Oil?
Q) Where can I find Free Real-Time Crude Oil Prices?
Q) Where can I find Free Crude Oil Charts?
Q) Where can I find free Crude Oil Trading News?
Q) Where can I find Crude Oil Technical Analysis?
Q) Where can I find Narrow Crude Oil Spreads?
Q) Where can I find a Free Crude Oil Trading Platform / Software?
Q) Where can I find more information on US Crude Oil?
Q) Where can I find more information on Brent Crude Oil?
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Spread Trading Crude Oil - 6 Week Look at Supply and Demand' by DB, updated 01-Jul-08
For related pages also see:
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There have been many column inches written about the current Crude Oil Bull market. However even during this Bull run there have been many ups and downs. Especially during the last 4 to 6 weeks.
So we thought we would have a look at recent events that have actually made a difference to the prices at Financial Spreads
...read article: Spread Trading Crude Oil - 6 Week Look at Supply and Demand.
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