Oil has been having an incredibly hard time in the market for about a year now; and the rough times seem to have gotten even worse. On Friday, the commodity edged below $40 per barrel before a slight recovery that brought the commodity to $40.45 by the end of the trading session. As a result, Friday marks the first day since 2009 that oil was selling for under $40 per barrel. Today, we’ll discuss what brought oil so low on Friday, the factor that’s likely to keep the value of the commodity down for quite some time, and what binary options traders can do to take advantage of the trends. So, let’s get right to it.
What Caused Oil To Fall Below $40 Per Barrel
Oil has been having a rough time in the market for about a year. However, if you would have asked even 3 months ago, I don’t think that anyone could have told you that the value of the commodity would fall below $40 per barrel. So, what was it that brought the price of “black gold” down so far? We could blame the declines on the tremendous supply glut we’re seeing in the oil market. We could blame the declines on the overall supply glut in the market; after all, that’s what started the declines about a year ago. However, I believe that Friday’s drop below $40 per barrel was fueled by much more than a simple supply glut. After all, the entire US market saw declines on Friday as well.
The reality is that the declines were triggered by mounting fears about the worldwide economy. Fears that were brought up by a mix of economic devastation in Europe, and more recently, the crash we’re seeing in the Chinese market and economy. The reality is that the worldwide economic climate simply isn’t looking positive. When economic issues arise, one of the first things that consumers do is find ways that they can cut down their bills. This means driving less, turning off their air conditioning units, and all but boycotting unnecessary use of energy. So, while the supply glut does play a major factor, demand is going to make matters even worse as the worldwide economy continues to show signs of a struggle.
Why I Believe This Won’t Be A Short-Lived Trend
In my opinion, low oil prices are going to last far more than weeks. As a matter of fact, I’m expecting to see the value of oil stay low for years to come. I read a Wall Street Journal post this morning that puts the supply glut, and issues around the glut into perspective. The reality is that this isn’t the first time we’ve seen declines in oil that were started by a supply glut. However, this is the first time we’ve seen such a stubborn attitude among oil producers around the world.
Currently, the world is producing more than 2 million barrels of excess oil (oil that is not used) every day. When these types of things happen, we tend to see a slowing in production from Saudi Arabia, followed by the United States, Russia, Iraq, and other oil producing countries. However, that’s not the case this time. In fact, if the production hasn’t remained the same in these areas over recent months, it’s increased. Ultimately, every oil production country wants to stay ahead of the curve; making sure that they take their fair slice of the pie. However, with no one backing down and oil production actually growing, the glut becomes an even bigger problem; making it so that growth in the price of the commodity simply can’t happen and declines are near imminent.
Aside from the supply glut, we’re seeing major economic concerns all around the world. As mentioned above, this takes a toll on demand; driving the price of oil down even further. While economic hardship isn’t likely to last forever, it’s also unlikely that a solution will be found over night. Therefore, the mix of an oversupply and declining demand can only send the value of oil in one direction… Down.
How Binary Options Traders Can Take Advantage Of The Trends
Oil is likely to be incredibly volatile for the months ahead. This means that we are going to see movements in both directions; giving binary options traders plenty of opportunities to capitalize. With that said, it’s all about timing and option choices. Traders should focus on entering trades either at support or resistance. From support, traders should purchase call options to take advantage of short lived upward momentum. From resistance, traders should purchase put options to take advantage of the downward momentum. However, timing is key here; so make sure that you’re only purchasing options at support or resistance. If the commodity’s price is in the middle of the spread, it really can go either way.
What Do You Think?
Where do you think the value of oil is headed and why? Let us know in the comments below!