It is entirely possible for one to be right when saying that Oil is the most valuable commodity on earth, while it may not be as expensive as Gold or as rare as other valuable metals it is, by far, the one used most on a day to day basis in our lives, giving it an extremely high value. They do not call it “black gold” for nothing….
Perhaps more than any other product, Oil pricing is a multi-tiered affair, and when trading in Oil options, one should have an understanding of quite a few factors to avoid any inherent risks that come with trading such a complex commodity.
Prices of Oil are generally divided in two – WTI and Brent, the differences between the two relate to their composition and places in which they are produced, they are usually quite similar in pricing, but the differences can cause some issues, so you should be aware of which type it is that you’re trading.
Trade Petroleum binary options here.
Oil as a product has quite a few uses in many forms, all of which are critical to the modern life: fuel to run our automobiles, jets and other machines, heating oil to warm our houses in winter and cook our food to name a few.
As dependency on Oil has increased over the years, so have its prices, and while alternative energy solutions are being sought after constantly, none have proven to be as viable as Oil has been which in turn only increases the demand for it.
To truly “master” trading in Oil options is to have quite an understanding of various macroeconomic conditions, and the vast effect those conditions have on the global market. Major examples from recent memory include the World financial crisis, which was at its peak height between 2008 and 2010, as well as civil and political unrest in Arab nations from Libya to Iraq around 2012 and the “Arab spring”.
The most direct effect a financial crisis can have on Oil prices is quite plain to see and easy to understand – in times where vast markets are in decline, many investors lose handsome amounts of money, this is not only limited to individuals but large corporations holding vast amounts of money. If that money is lost, at least partially, income for many households declines rapidly. The direct result of lost income is usually large purchases such as new cars, and if less cars are purchased they use less fuel, which, as you might know is derived from Oil. But even more basically – fewer households can afford the price of heating in times of winter, which, again, is derived from Oil.
As you might predict, such a financial crisis causes a sharp rise in Oil pricing due to the prediction of lost income and consumption.
That was the case in the 2008 crisis, during which Oil prices peaked at $145 per barrel, the highest they’ve ever been.
But as we mentioned, there is one other major factor that contributes to the pricing of Oil that you should be well aware of if you intend to trade in Oil options.
As with many other commodities, political and civil unrest tend to greatly effect Oil prices, as was the case around 2012 when massive unrest in a few Arab nations caused another spike in prices, this is generally considered to be tied into the fact that countries such as Egypt, Libya & Iraq to name a few, hold a massive amount of Oil reserves, so any harm to the supply and production of those massive reserves may have a long term impact on oil prices globally.
While we’ve mentioned a few large scale events and how they can have a possible effect on Oil prices, the savvy trader is also mindful of smaller scale events at their onset, as they can have an indirect effect on prices, for example, Hurricane Katrina in 2005, while that event was relatively localized and caused massive loses of life and property, they also caused a spike in Oil prices, due to the fact that the Gulf region of the US was adversely effected, that very same region not only houses quite a few off-shore drilling platforms which sustained damages, but it is also a major hub for transportation of Oil to other parts of the US.
If all this negativity has scared you off trading on Crude Oil binary options, be not afraid, there are profits to be made here, but while the factors are many, you could easily harness Oil in your favor, and in stark contrast to it – you won’t have to drill down for profits – those will simply come to you if you play your cards right with black gold.