Do you remember the oil crisis? How could you not, it was just a few months ago that the value of oil fell like a ton of bricks! As a matter of fact, we're still seeing incredibly low oil prices. However, with the gains we've seen recently, investors are starting to ask…”Is oil back in the bull market?” From a technical standpoint, this is a very easy question to answer. However, from a fundamental standpoint, things look a bit different. With that said, the answer to the question all depends on how, and most importantly, when you're trading.
Technically, Oil Is Officially A Bull Again
If you follow my writing, you know that I'm a fan of both technical and fundamental analysis; and use them both quite often. With that said, in the short run, I always gravitate toward technical analysis. The bottom line is that when making short term predictions, the charts don't lie! With that said, if you pull out your candlestick chart and open it up to show you the last 3 months, the trend is clear. It's a strong bull headed for the top; and in the short run of things, it is most likely going to continue climbing.
Fundamentally, The Growth Is Flawed
Fundamentally on the other hand, an entirely different story starts to emerge. In the fundamental world, charts don't matter. Instead, we look at contributing factors that will play a role in future growth of the asset. In this particular case, that's where things get a bit shaky. Here are a few things that are important to consider with regard to the price of oil from a fundamental standpoint…
- What Causes Price Movement? – In the oil market, price movement is heavily influenced by supply and demand. Therefore, when there is an oversupply of oil on the market and weak demand for the commodity, the value tends to decline. On the other hand, when there is high demand and weak supply, the price rises.
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Demand Is Still Too Low – There's no arguing the fact that demand is up. As a matter of fact, oil rates just increased by $1 per barrel to the US and Europe from Saudi Arabia based on higher demand. However, we're not out of the woods with demand just yet for two reasons.
- Reason #1: Demand Still Hasn't Outpaced Supply – Even though demand is up, it's not up high enough. The world is still producing far more oil than we are using!
- Reason #2: The Reason For The Increased Demand – While some of the increase is caused by better economic conditions around the world, a good portion of the increase in demand also has to do with the low prices; which is a double edged sword. Higher demand will drive the price up; however, when the price gets too high, demand will fall and we could very well be back in the same boat!
I won't lie, there are fundamental data points that point to increasing prices as well. For example, as a result of the low value of oil, rigs are closing down around the world; leading to a lower supply. Also, protesters have slowed Libyan oil exports. However, even with the lighter supply and the heavier demand, we have not yet reached a sustainable point. So, it wouldn't be unlikely to see more downtrends in the long run.
Trade The Trends
The good news is that as a binary options trader, you're able to profit from both uptrends and downtrends. So, while we are still in the short term bull market, trade the trends and make the profit. When the market adjusts, buy puts on the way down and profit from both sides! Happy trading my friends!
CIO Fund 