Oil prices are once again on the rise, but not everything is as clear as it might seem within the crude oil business. The commodity has risen to about $50 per barrel, after another recent trip down below $40. Experts have cited the reasoning for this big jump in price as a result of increased usage and demand for oil. During the summer months, oil usage has gone up quite a bit thanks to increased travel. However, what might be even more important than this is the fact that international demand for crude has increased, too. Countries that do not have high levels of oil on their own are purchasing more and more, which has inevitably driven prices up.
Saudi Arabia—the world’s largest oil producing nation—has made several public statements about cutting back on their production. This happened after flooding the world with oil availability, which was one of the main reasons why the price of crude had dropped so dramatically. Whatever their reasoning for this, the country has now stated that they will cut back on production in order to try and stabilize prices. However, because of the recent increase in demand, the Saudis have had to increase their production levels a bit in order to satiate the demand that was recently created. The Saudis have stated that they want to work with the rest of OPEC when it comes to controlling the supply, but as of right now, their production is flirting with record levels as they try to outpace rival nations like Iran and Russia.
An informal OPEC meeting has been scheduled for September to try and figure out what the best strategy for oil production and distribution is. Short term commodity traders, and specifically binary options traders, should be focusing on this meeting in order to fine tune their trading strategy. There are rumors that an output freeze is something that will be considered. If this does happen, you can be sure that the price of oil will jump again. This is true even if demand levels decline. When supply goes down dramatically, price goes up as long as demand does not decline at quite the same rate. However, with Saudi Arabia’s track record of bucking OPEC recommendations, a freeze does not seem like the most expected outcome of this. Again, news events like this one need to be given your attention so that you can make accurate short term decisions and not be at the mercy of the media when it comes to your ability to create profits for yourself. Trading the news is a very powerful trading strategy, and when it comes to oil or any other asset that is in the spotlight, the media has a profound impact on where prices will go over the short term, regardless of what fundamental and technical indicators point to.
Also, it’s worth paying attention to what is going on with the companies that rely on oil for the core of their business. Many of these companies are in unstable territory, and many have been reporting big losses over the last quarter. Increased demand has the potential to help these companies, but if the demand is not lasting, any tangible results that these companies see will quickly disappear. This could actually hurt the industry as a whole, and even have an impact on how crude as a commodity performs. This is a vulnerable sector right now, and trading the stocks of oil companies is much riskier than trading the commodity itself. Binary options present a safer way to trade than futures contracts, especially if smaller amounts of cash are used, but the end decision on how to approach this is ultimately up to you and your background as a trader.