Oil trading can be extremely profitable. However, at the same time, it can be a gut wrenching financial roller coaster, and it is the kind of market that isn’t for the weak. However, not only does an investor have to have some serious intestinal fortitude, the average energy trader will also need to figure out the best way to proceed. This can be difficult, but by understanding who the players in the market are, and the impact of supply and demand, it might be easier to judge were the oil market is going, which can affect the investments that are made.
The first thing to understand is that OPEC, unlike the past few years, will be cutting production. Over the past few years, OPEC and mainly Saudi Arabia has pushed forward with elevated production of crude oil. This was while oil was crashing, reaching as low as $20 a barrel in 2016. This production, aimed at maintaining market share, allowed for counties like the US, India and China to amass huge surpluses of crude oil.
However, many countries, such as Venezuela, have been experiencing severe financial crisis such as unfunded governments and food shortages. While a country like Venezuela would need to see prices per oil barrel in the $180 range to make an impact in their economy, other nations like Algeria, Nigeria and Libya would need to see barrel prices in the $120 range.
This huge price increase would have a huge impact on the price of a gallon of gas. Fortunately, it is unlikely to see a barrel of oil at prices anywhere near $180 or even $120. In fact, it is unlikely that prices will get close to $100 per barrel. The more likely price would be around $60 to $65 per barrel. If that’s not a good profit point, which it isn’t for some, investors may want to try this out and move to investments in natural gas. With longer production from natural gas wells, and increasing demand, this may be a good energy trade to avoid the ups and downs of oil.
Whether you choose to stay out of the market to wait for some semblance of stabilization, dive in headlong or move to other energy trades, oil and gas prices will likely continue to fluctuate. It is this type of market that can test the strength and perseverance of a trader.