Oil prices are so volatile because of the Duopoly who controls it. OPEC and USA are the major players and it seems that for the past 2 years they never get to a consensus. Efforts on production cuts are always the card played by OPEC. Their counterpart, on the other hand, is doing the exact opposite.
Billions of dollars are made every day within the Oil industry.An important rule of understanding Oil prices change is Supply and Demand. Cutting from production (pumping oil) it means less supply and more demand therefor Oil prices rise. Similarly increasing production leads to oversupply and less demand meaning Oil prices drops. Do we want oil prices to be high? Well, it depends on what camp you’re in. Let’s say you’re owning an Oil company then yes. However, if you’re the average consumer, higher Oil prices will won’t benefit you. One camp might be for some the place to be. Trading on Oil both directions can turn out profitable.
How Rockefeller Build his Trillion Dollar Oil EmpireWhen you look at the wealthiest man alive today topping the charts are tech billionaires like Jeff Bezos and Bill Gates. But actually the wealthiest businessmen to have ever lived died almost a century ago. An Empire that grew so fast, even after 100 years of technological progress no man has managed to overtake it. How Oil prices moved accordingly to the time that passed. Every year, still nowadays, he keeps increasing its value and John Rockefeller built his fortune on a $4.000 loan. Started his own brokerage and trade at the time hey and other goods. In 1859 when the first Oil well was discovered and marked the beginning of his fortune. In only the first year 4,500 barrels of Oil would be produced. Oil prices were low since the gasoline car was not yet invented. But the oil could still be processed into kerosene used in lamps for illuminating homes.
At that time drilling for oil was a gamble and many got bust before even starting to drill for oil.
John Rockefeller understood that and instead he let others go through the hassle of finding the oil and he would just buy it off. In time his team grew and having banks to back him up and oil prices rise year by year increasing his wealth. Acquiring refineries across the North US and refining over 90% of the entire country's oil production. At this point John was so powerful that he could invite the owners of the big rail companies and personally negotiate rebates for using their trains. But this practice of negotiating really got the business worldwide up at the time. Whit technology picking up extraction and processing Oil become much easier and effective pushing they Oil prices today to $72/ barrel.
Long story short John Rockefeller was named the richest businessman to have ever lived with an estimated net worth of $400 billion.
OPEC Members vs the US
The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization. It was found in 1960 by the original 5 countries (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela). Today it measures 15 countries and it was estimated a month ago to be 44% of global oil production and 81.5% of the world's "proven" oil reserves. OPEC's goal is uniting the petroleum policies and its members, stabilizing the Oil prices and markets. Following this idea securing the supply of petroleum to the consumer and laying out fair Oil prices globally. The effect is quite strong on a global scale and the decision taken by OPEC in 2016 regarding oversupply. Efforts from all member countries and OPEC where often refuted when the US is doing its “Own Thing”. Trimming supply and trying to increase Oil prices were never as expected because of the US oil rigs pumping more barrels a day. In late 2017 Russia decided to agree with OPEC and joined the program but not the organization.
US Claims: No Longer Dependent on Saudi for OilAllegations from Paul Bonicelli: “The Crown Prince doesn't seem ready for primetime”. Apparently, Saudi crown prince is accused of having Jamal Khashoggi killed and that he is a "30-year-old full of himself". Headlines of US stepping in and cleaning up the mess and conspiracies. For starters always the US entered Middle East with the excuse of human rights. Tensions created by the US government starting with the war on Iraq in 1998. Same geopolitical tensions against other countries with the pretext of world peace. But is it really the case here? Oil prices are volatile when such events are occurring but for the naked eye is just news and propaganda. Often the public opinion ceases to exist when people are fed with lies. Oil prices are still stable and regardless of US tensions and falls accusations will remain stable.
Future projections on Oil pricesWhile the US is creating their story convincing everyone their right, the rest of the world is going GREAT. Oil prices are expected to rise even more this winter since weather predicted are looking colder than previous 5 years. “Winter is Coming” and with it the need to heat our homes obviously we are going to use gas or petroleum products. Most probably we will pay more because of low supply but increasing it mid-winter. If we're looking back at Oil prices around this period, we can find similarities. However, with all this geopolitical tensions Oil prices might change. So from a speculative point of view, we can assume that whoever speculates more can push the Oil prices. It remains to be seen if the US will apply sanctions against Saudi. Lacking evidence on the so-called case of murder. Oil prices are affected by speculations and clearly visible all over the charts.
Trading Oil prices might not be the option for day tradersSome traders might decide that is not a good idea to trade on Oil while other will take advantage of this speculation. Let’s try to identify traders and build a technical analysis as we go along. Day traders are looking for opportunities in the market. Their goal is to get in and out and leave no trades open overnight. Institutional traders, hedge funds and oil companies will have trades open over weeks even months. The impact towards Oil prices can differ from case to case since we are talking about massive volume trades. Why is this important for retail/day traders? Well for starters the amount of money they invest is nowhere near close to institutional traders. If a day traders open a buy position and closing it in one hour making profits of $100 it means the oil prices are appreciating.
The logic and mentality of trading on Oil pricesOil is a feature or commodity traded on barrels. With a price of $71/ barrel. Taking the example from before we have this time an institutional trader. Closing his position in one hour with $10,000 profits the oil prices are depreciating. Because the money is not in the market anymore. Let’s try and look at Oil prices from a totally different perspective. Imagine a bucket of water filled half way with water. Then try adding small rocks a third of the buckets capacity. Water level will increase. Take a bigger rock and set it in your bucket to see the water level almost spilling out. If you take out the small rocks the water level will decrease by a bit. However, if you pull out the big rock the water level will dramatically decrease.
Liquidity vs KnowledgeTaking this concept and applying it on Oil price it makes sense for institutional traders and company to stay on the markets longer. First they have the liquidity to do so and if the Oil prices are depreciating they can always hedge. Day traders, on the other hand, don’t have the liquidity nor the knowledge to take advantage of such Oil prices shifts. Building a strategy when trading on Oil prices it’s always the best thing to do. However, following only technical analysis retail traders failed to make returns then choosing Oil prices. The reason behind is every Wednesday release of Crude Oil Inventories. On that specific date, day traders will avoid opening any trades on US Oil prices and wait to the event to finish. This type of fundamental analysis is similar to NFPs or ADPs releases but different.
Negative numbers are the Best! Wait, what?Now we probably have a bunch of confused readers while others will laugh. Negative numbers are indeed what we want for Oil prices to rise. Yes, traders are waiting for the numbers to be listed and for Oil prices to rise the number must be negative. Since we know it’s about supply and demand, less supply will make Oil more demanded and Oil prices will rise. Vice versa if numbers are positive, having higher supply, Oil prices will drop. Opening trades for the sake of trading will never bring you profit. Oil prices will still move regardless and no matter how much knowledge you mass will not make a difference. Following trends, analyzing every day or trading on a practice account will never prepare you losses. With so many called educators, posting on social media their results people believe in a dream.
You will probably spend more on education material than the actual trading.And YES my friends real trading will FORGE or BRAKE you. Getting back on track with our Oil prices today, decreased about $1,01, since yesterday. Crude Oil inventories will be released by the time you read this, impacting the price. Clearing the clouds opinions can be forged ether PRO or against speculations or fact forging. Remember, for traders to be profitable such events are welcomed, check the Oil prices. The list can go on and if we try to break it down even further I’m afraid you will get even more confused. But for the sake of this article, I will indulge my readers and taking it to the next level. We will try to figure out if individual economies can impact Oil prices in terms of energy creation.
Electricity Demand by Region and Oil PricesNo surprise here if we list China as the biggest consumer of electricity and Oil importer. Followed by the US, India, Europe, Southeast Asia, Middle East and Africa. Well checking the chart, we can clearly see projections up to the year of 2040. When Energy demand grows, Oil prices grow with it but wait, it doesn’t stop there. Manny petroleum derivatives are used in our day to day living stile starting with toothpaste and chewing gum. I hope you’re ready for this ladies, lipstick, perfumes even contact lenses. Another honourable mention that will increase the demand for all the above is the ever-growing GLOBAL POPULATION. Oil price will surge slowly as the demand grows slowly. However, a massive surge in Oil price will happen when there will be very little to drill out. Electricity is the rising force among worldwide end-uses of energy, making up 40% of the rise in final consumption to 2040 – the same share of growth that oil took for the last twenty-five years.
Conclusion and Speculative Analysis Regarding Oil Prices
- Geopolitical tensions and sanctions will always impact markets in our case Oil prices creating trading opportunities.
- Day traders vs institutional traders will not have the upper hand on hedging their positions when Oil prices are shifting.
- Speculations carry a powerful toll on Oil prices, therefore, the one speculating more will leverage themselves.
- Fundamental analysis will play a major part in Oil prices especially during Crude Oil inventories or OPEC policy changes.
- Technical analysis can also prove to be accurate for long-term trades where Oil prices can change in massive amounts.
- Trading on Oil prices can turn out profitable as long as you understand and differentiate all the above aspects.
- Energy production is one of the most important aspects of Oil prices changes alongside with global population increase.
- Last but not least psychology will always be part of your trading behaviour where it can FORGE or BRAKE you.