Friday, 2 December 2011

Oil Prices Trading

Oil Prices were news-makers last year along with the topics of the global financial crisis and Forex markets. Having reached the maximum of 147.26 USD per barrel on June 11, 2008, it lost 70 % of its price in half of a year. Analytics assumed that the main reason for oil prices collapsing was overheating of the market caused by speculative capital. From the fundamental point of view, 100 USD per barrel was acceptable, but oil just could not cost 140 USD per barrel.
Late 2008 oil prices stabilized within the range of 40-50 USD per barrel, and until spring it fell down to 38-42 USD per barrel. It was significant in the first half of the year that it was not bound to the dynamics of the American currency. For half the year it was outbidding, then oversold. At the time the fair price was 101 US dollars and until recently it's fair price was 70-90 US dollars per barrel. (Now with the global problems exacerbated by Iran Oil Prices have risen once again to $100 a barrel.)

In the summer, the largest world agencies and investment companies forecast that oil prices would not fall below 100 US dollars per barrel. And, there was a forecast that Oil Prices would go to 150-200 US dollars per barrel. Such forecasts are not uncommon as the biggest investment companies have their own positions on the oil market and recommendations of a rise are in their favor.
Participation by major funds and investment companies in rallies in oil prices is one reason for the extreme volatility of oil prices. At the time in 2008 as financial crisis overwhelmed the world nobody cared there was fraud in the primary market. The liquidity crisis forced a sell-off of all assets including primary contracts. Weak macroeconomic data and expectations of the demand for fuel reduction aggravated the situation globally. Today's situation is not far different from what was experienced with Oil Prices only a few years back.

Crude Oil Trade:
The oil produced across the world is not of the same quality and, consequently, differs in price. The prices depend on the density and the various paraffin admixtures that are added to the oil blends. The standard for the prices is the “Brent” oil grade, which is similar in composition to the one extracted in the North Sea, and the delivery contracts are settled at London raw exchange market. The price for this grade is often set up by Mass Media.
Mostly this price is a contract value for "Brent" oil in next month. When signing such contract called the futures the buyer is obliged to pay and accept the delivered product. The seller has to deliver it to the place indicated.
Futures contracts are being concluded at appropriate bourses and paid away daily at the current market price. The minimal contract volume is 1000 barrels. The main trading floors for the oil deals are the leading stock exchanges, such as NYMEX, CME, РТС and LOE.