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 view, you can take a position on a range of oil products with IG Index. Our tight spreads allow you to go long or short on US Light Crude and Brent Crude, with an additional choice of Options and Binaries.
Alternatively, we also offer prices on Shares in the oil majors such as Shell and BP, another way to get exposure to the Oil markets.
You can limit your risk on any position using our free non-guaranteed stops, or, for absolute risk protection, consider paying a premium for a Guaranteed Stop to protect yourself in full against any sudden moves in this volatile market.
Last updated: 23/10/09
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.