Oil in Six Months

The Oil Trade

Experts say that oil is going to head up to the $60-$80 per barrel range in the near future. There are many reasons for this, the big ones being a steady demand, a stronger worldwide economy, and OPEC actions. However, what it comes down to is that oil is a necessity in our world, and now that the economy is doing better in most parts, the demand to buy more and more of it has returned.

It’s believed by one analyst that this will happen by the end of this year, and that prices will stay within that range for quite some time. A portfolio manager at a high profile energy investing firm has made this claim publicly, and his holdings are beginning to reflect this. It makes a lot of sense, too. Oil has been down for so long, thanks in part to a poor economy outside the United States, but this is beginning to change, especially in parts of Europe and Asia.

Having a broad range like this one (at $20) is normal just because of the nature of the market and because it accounts for any sort of minor incident or event that could affect prices. For example, if you watch the stock market on any given day, prices do not just go in one direction. They go up and down, sometimes more so than others. If you watch over an extended period of time, the same happens. It’s called oscillation, and it is the market’s natural way of stabilizing prices and helping investors find the most efficient price. As far as events go, oil is a globally traded commodity; the most popular one in the world. If a major oil producer, like Saudi Arabia, were to erupt in civil war or somehow unable to keep producing and exporting oil, there would be a major shake up to the price of oil. This would account for a lot of price changes, but perhaps not $20 worth over a long period. So, while a $20 range seems noncommittal, it’s actually a necessity in order to be accurate.

The good news for traders is that crude oil is not yet within this range. It’s been headed this way for a bit, but as of writing this, oil is still right around $58 a barrel. Buying a call binary option that expires at the end of the 2015 calendar year would put you right in line with these experts’ opinions. Is it a guarantee? No, it’s never for sure. But the data seems to point to the fact that this is a strong likelihood, especially if the global economy keeps heading in the direction that it has been. There are a lot of issues to sort out, but things are marching slowly in this direction.

Once it reaches the $60 to $80 range, then how do you trade oil? This is a lot trickier, but by relying upon the news and adjusting your strategy to meet the global sentiment at the time, you can make many short term oil trades that will allow you to keep growing your account sizes without having to wait all the way until January 1st, 2016, to finally see a profit credited to your trading account. Oil has sunk very low in the past, and there are very few indications that this will happen again in the near future. For now, the vast majority of signs say that up is the only way it can go. Positioning your trades accordingly in order to profit off of this is just the smart thing to do.