Now that oil is rising in price, it is only a matter of time before the energy stocks start to see gains, right? Unfortunately for traders, it’s not quite this easy, especially for U.S. based traders. For starters, energy stocks are still losing value. On Friday, the major energy stocks fell by 0.25 percent on Friday, March 18th, the first full day of trading after oil started showing realistic strides forward. Utilities also fell in value by 0.50 percent. This latter point is not a surprise since utilities lag behind energy stocks when oil prices go up, but the excitement of oil showing gains should have helped a little bit more than it did.
One key reason why energy stocks are not guaranteed to go up is because the U.S. has recently transferred ownership of its largest oil refinery to Saudi Arabia. Shell and a Saudi Arabian company had a jointly owned company that owned three refineries in the Gulf Coast area. This company has now split up, and the portion owned by the U.S. company have been sold off so that they are now fully owned by the Saudi company.
There has been a lot of debate over whether or not oil’s gains are going to last. This is a great question, and it’s certainly weighing on the minds of traders. However, the fundamental data should take precedence over the technical, especially if the fundamental information is saying that the price should go up. As you take your positions, this should be kept in mind, even if you are taking out binary options. The longer the expiry, the more heavily fundamental information should be given priority. However, the information is not yet leaning in this direction. That means that despite the seemingly good news that is coming out of the oil industry, there’s absolutely no reason yet to believe that stocks will be positively influenced by this. Major players like Shell, Exxon Mobil, Chevron, and others will still see the typical ups and downs that are common within the oscillating nature of the stock market, but the fundamental information that influences their raw materials, namely crude oil, have not changed in a manner that will actually help the stock price yet. In fact, if the predictions that panic selling will begin soon are correct, the fundamentals are actually going to end up working against the companies, especially Shell since they have given up some of their stake in the processing and refining of their product.
Oil is far too risky to take long term long positions in right now. Binary options do present a good alternative because of the limited risk and short exposure time, but the overall trend should be taken into account when you form your positions. Right now, the commodity is in transition, and it’s almost impossible to tell where the trend is headed. We recommend that you stay away from oil until some sort of event or price movement happens that will tip the scales and cause oil to choose which way it’s actually going to move.
Finally, also know that the major utility companies could actually be positively influenced by oil’s uncertainty, especially if they have strong management guiding them. There are almost no utility companies represented in the binary options market, but if you are going to execute trades in the traditional U.S. stock market, there may be opportunities here for profits. Just be sure to do your research very thoroughly before you commit to anything. With a lot of tension in the industry overall, such as what we’ve see with Chesapeake Energy, there is a lot of room for error here.