The price of oil is almost exactly where it was a year ago, but a great deal has happened since the last time oil was above $80 per barrel.
On Tuesday 20 October 2009, oil breached $80 per barrel for the first time in 12 months. The last time it hit this level it was in reverse, and we were witnessing the middle of a nosedive that took it from more than $140 to less than $40 in just six months. Now the market is climbing again, but after a 10 month rally, and a particularly bold past few weeks, it’s worth asking the question: what is behind this revival?
Opinion is divided on whether the rally is being driven by economic fundamentals or speculative activity. The argument for fundamentals is that positive US company results are indicative of a sustainable global economic recovery, which is in turn driving the oil price upwards. However, OPEC’s spare production capacity presently stands at 5.5 million barrels per day, a high level by historical standards, which suggests it isn’t purely demand and supply that is driving the price higher. But while direction may be governed by speculation in the short term, at some point simple supply and demand must determine the fair price.
The price of oil affects everyone and everything, from transport costs to your monthly basket of goods. And several things in turn affect the price of oil, including demand and supply, the strength of the US dollar and trader sentiment. This inherent volatility is a big part of what makes our Daily and Monthly US and Brent Crude Oil spreads so popular.
So just how much further can speculation and sentiment carry black gold?
Take a position on commodities
Whatever your perspective, with IG Markets you can take a view not only on the price of crude oil and individual stocks such as Woodside Petroleum, Oil Search and Santos, but also on the energy sector itself. Energy sector trades are an easy way of gaining exposure to the whole sector and diversifying your portfolio.
We offer commission-free, low spreads on US Light and Brent Crude CFDs. You can limit your risk and maintain your potential profit when trading individual stocks, Crude Oil or energy sector CFDs by using our Guaranteed Stops.
The above comments do not constitute investment advice and IG Markets accepts no responsibility for any use that may be made of them.
Last updated: 02/11/09