The oil industry has a history of boom and bust cycles; this makes the product appealing to spread bettors and investors who are confident of predicting when downswings and upswings are looming.
Low oil prices remain a major concern
In the past week, oil has continued to sustain low prices that have led a barrel cost slip below $31. Ignoring the various effects of oil prices on the economy will be disastrous to the players in the market. Therefore, to be a successful spread bettor, understanding the dynamics of the oil market will help one stay at the top of the game.
The value of the product depends on the forces of demand and supply. In recent weeks, there have been a glut of production in some countries, but huge consumption neutralized the situation. For instance, in China the economic slowdown being experienced has decreased the demand for various commodities including steel and oil.
Reasons for reluctance in regulating oil production
Some countries have shown unwillingness to limit production, since they prefer maintaining strongholds in the market to enjoying huge profits. Such countries keep in mind that in the long run machinery and vehicles are embracing energy-efficient fuels while people are keen in taking care of their environment. Therefore, their mission remains to keep their customers satisfied at all cost.
On the other hand, there is a tendency that prices may gain an upwards momentum if some oil companies will profitably finish their new drilling projects and explorations. Numerous factors have affected oil production in various countries, for example, in Nigeria; the rebel attacks decreased the country’s export while in Canada the forest fire affected oil production in the North American region.
As it can be observed, most of these factors are short term; however, analysts expect the prices to remain low for few more years. So how can spread bettors maximize the existing wavy market?
Recent events that could affect oil prices
Despite the downward tone of the oil prices, the product may see a slight rebound this week. According to CMC Markets, prices of oil had already surged by 2% on Monday (September 19) following President Nicolas Maduro of Venezuela’s comment that a deal may be reached concerning limiting oil output between non-OPEC and OPEC producers.
On September 19th, Brent crude prices stood at $46.54 per barrel at 06:45 am, rising 77 cents from the previous close while US crude prices went up 78 cents with a barrel at $43.81.
The clashes being experienced in Libya may boost oil prices in the coming weeks. The chaos in the country mean that Libya’s exports are disrupted, while there have been difficulties in loading oil at Ras Lanuf for almost two years due to unending conflicts in the region.
While focusing in the coming week, there will be an informal meeting of OPEC producers scheduled from September 26th to 28th where among the major points that will be discussed is the possible oil production freeze. Previous discussions have generally slowed down because of holdout countries that fail to restrict oil production.
Nonetheless, Mohammed Barkindo the OPEC secretary-general indicated to APS, an Algerian state news agency, that another meeting may be called following next week’s in case progress will be realized; it is in this meeting, that now new decisions on oil freezes will be highlighted.
Some countries such as Saudi Arabia which has typically refused back down its production, has shown interest to engage in open communications, since the prevailing low prices have negatively impacted the country’s revenues.
Are there any possibilities that oil prices will go up this week? There are still no major oil releases over the next few days except the weekly oil supply report from the American Petroleum Institute and the US oil rig count from Baker Hughes. This has further complicated predictions from spread bettors.
But what does this mean to spread bettors? Well, any spread bettor will have to rely on socio-political and demographic factors to help them decide and predict the changes the market will take this week.
