Thursday, 1 December 2011

Oil Prices

Oil Prices whether they be rising or falling always offer an opportunity to make money. Oil prices can alter the economic climate of nations overnight and create fortunes for traders no matter which way oil prices go. A few days ago oil prices had risen significantly and made oil the best performing asset class for the past month. Today oil prices have retreated slightly and changed the balance sheet valuations of oil companies almost at a blink.

The truth behind today’s increasingly volatile oil market is that over the past two decades oil prices have come untethered from all classical notions of supply and demand and have transcended any country’s, consortium’s, cartel’s, or corporate entity’s powers to control them. At play is a subtler, more complex game than most analysts realise involving runaway financial speculation, self-defeating government policy making and a concerted disinvestment in refinery capacity among the oil majors. The demand for oil is pervasive in all economies - developed, industrialised and less developed ones. Oil is the most traded commoditiy in the world. Not only does oil provide fuel for industry, households and transport it is often an ingredient in food, plastics and other materials. To make money trading oil it is not a matter of buying barrels of oil, transporting and storing them. A far easier way is to make money betting on oil prices in the futures market.

Oil had risen in earlier Asian deals when central banks on Wednesday in the euro zone, Canada, Britain, Japan, the US and Switzerland cut the cost of providing US dollars to prop up the global financial system. The dramatic move rallied global equities as traders welcomed these efforts to reign in the runaway euro zone crisis. Today Oil prices slid on rising weekly US jobless claims and downbeat Chinese manufacturing data. Oil prices for New York's main contract, light sweet crude for delivery in January, dropped $US1.19 to $US99.17 a barrel on Thursday. While oil prices for Brent North Sea crude for January sank $US2.16 to $US108.36 in late London trade.

For traders who were long oil since last month they were surprised when crude oil futures were pulled lower by official data for November which showed for the first time in 33 months Chinese manufacturing activity contracted. China's purchasing managers index (PMI) fell to 49 last month. This was down 1.4 points from October, marking the first contraction since February 2009 and likely to have a negative impact on Oil prices in the futures market.

Traders holding long positions in the oil futures market were in a quandry considering the impact of central banks' action to boost liquidity. However if you had a modest training in the basics of how to trade Oil Prices you could be making money in Futures!

Intertwined with Oil Prices are currencies. For example a spike in Oil Prices s usually matched by a decline in the US dollar. Therefore every oil prices trader should also learn Forex.