By now, everyone knows that oil is at a low price. You can’t help but notice when you go to the gas pump to refill your car. But, why is oil so cheap right now? And how can you profit off ot this? These are two big questions that traders must be asking when an opportunity like this arises, and these two questions are very closely related in nature. When the first one changes, the second will too. So, let’s take a look at the reasoning behind what’s going on, and see what you can do to maximize your profits with it.
For starters, you need to know where we were. Oil has been in high demand for years now, hitting a high price around 2008. But even after that, in the midst of the Great Recession, prices have been hovering around $100 to $115 a barrel. These prices were high, and they were unsustainable for the average person. That led countries that don’t normally have high oil production–namely Canada and the U.S.–to start drilling and finding other methods of fueling. Shifting worldwide events also played a part, but long story short, the world is not as dependent upon countries like Russia and Venezuela for oil as they once were.
And while demand is still high and probably always will be in our lifetimes, the current supply is actually higher than demand. Remember your Economics 101? When supply is higher than demand, prices go down. In this case, they went way down–about 50 percent in just six months. OPEC was expected to cut production in November, but they didn’t. Saudi Arabia decided that they could still maintain their current production for the next 12 months and still be fine economically, so nothing was done, even though weaker economies–namely Russia–are now suffering. Perhaps the biggest reason behind this decision was to force the U.S. to cut back on their own production, but that hasn’t happened yet.
A year from now, this might be different, and if prices are still low, you can bet that OPEC will step in and cut production in order to force prices up again. In the meantime, predictions are going to be a bit tougher.For you as a trader, you need to be measuring alternate production countries output, such as Canada and the U.S., again, and then balance what they are doing in relation to the worldview. If output stays the same, it’s likely that prices will go down for a bit until demand catches back up with supply. If production begins to taper, prices will go up until a balance is made this way. Either way, crude oil prices are still in flux, and there are a lot of chances to make money off of it. Bigger traders can use commodity futures, while smaller traders can use binary options to their advantage.
Binaries are unique in that you can take out ultra short term positions with them. Usually, a commodity futures contract would not be shorter than 6 months. You may be able to unload it sooner, but commodities are not typically day traded because they are so costly. Binary options give you a chance to do this, though. Be careful with these, however. Commodities like oil are not usually in momentum a lot within the course of a couple hours, but rather with a short term approach, you should be trying to project a few days or weeks. This will mean that you need to take fewer positions than you would with other binaries, but if you balance the size of your trades, there should be little to no lost profit. And with a good set of information, this is actually a very reliable method of increasing profit rates.
We make it our mission to not recommend anything but the best – which, according to industry experts, is IQ Option, the top regulated broker for your country with a minimum deposit of ONLY $10!
Between 74-89 % of retail investor accounts lose money when trading CFDs