Oil prices are finally starting to show signs of going back up, which is good news for investors, and bad news for commuters when they top to fill up their gas tanks. The big question is, will the price of oil keep going up?
First, you should look at what U.S. inventories currently look like. This is the fourth straight week that these have dropped, and simple supply and demand indicates that this will drive prices up. The drop was about 2.8 million barrels, which is a sharp difference from what estimates had indicated. One estimate, by Reuters, said that inventory would drop by 857,000 barrels, while the American Petroleum Institute indicated that stores would go up by 1.3 million barrels. A big shortage will lead to momentary price spikes, and if there is no correction in the inventory, then prices will probably keep going up until something is fixed.
Despite the decreases gaining rapidly, oil bulls haven’t had much power in the weakened market. Prices are still low, and one good day after several bad ones does not get the price back to where long term traders would like it to be.
A second consideration is the strength of the U.S. dollar. Right now, the dollar is very strong, and it is driving down prices all over, including that of crude oil. This ends up being a stronger force than four weeks of inventory decline. The recent rise in U.S. crude was of 0.3 percent, while the decline the two days before it were of 3 percent. So, yes, prices are going up, but there’s a long road to go before they are back where they were. In fact, it could be over a week at this pace before they are where they were even a couple days ago.
There are a lot of indicators out there to help you gauge where oil is going. The dollar seems to be the strongest one right now, but inventory, consumer confidence, policies from OPEC and the Middle East, and any news that the U.S. government releases in regards to foreign trade or crude oil will all influence prices. Understanding how these things interact and how they will play out will allow you to get a better feel for what prices will do in the future.
The next step, then, is to make sure that you are using this information for your profit. Trading the price of oil is tricky because most commodity brokers focus on long term investments. And because these are futures, the contracts are a bit more rigid and there’s a chance that you could find yourself having to make good on a delivery of barrels of crude. They also have a bit less liquidity. If you are dealing with thousands of barrels, you will do well here, but most people don’t have this amount of expendable cash to tie up in a potential contract fulfillment. This creates the potential for binary options to take a foothold in the market. They have a low cost of entry, and they allow you to focus on terms that are much shorter than futures are. You can trade the price of oil for a few minutes or a few hours, or to the end of a week, month, or year. Oil typically moves slowly. and when you are in a pattern where prices are easy to guess the direction of, it makes a perfect scenario for trading binaries. It’s a skill that you will build over time, but it is a valuable one, espeically for cashing in on this underused portion of the market.