Oil has been on the downtrend for quite some time now and it seems as though things are getting worse. While this may be a bad thing for energy companies and oil investors, it's a great thing for binary options traders as it opens the door to opportunity. Today, we'll talk about why oil started to fall, why declines are continuing, how long declines are likely to last and how binary options traders can take advantage of the trends.
What Caused The Bottom To Fall Out Of Oil
Oil, like most other commodities, is heavily dependent on the law of supply and demand. When the supply of the commodity climbs and demand falls, the price of the commodity must decline to increase demand. That's exactly what happened. For several years, the world has been producing far more oil than it uses. As a result, we started to see a supply glut that reached a breaking point in late 2014. At this time, it was expected that Saudi Arabia would reduce production to help support prices. However, that's not what happened. Soon the price of oil would fall to crisis levels, and unfortunately, it's been falling since.
Why The Oil Decline Continued Wednesday
Wednesday was an incredibly bad day for oil as two big pieces of news came out showing that the supply glut is far from oil. Here's what we saw…
US Oil Inventories – One major concern is US crude oil inventories. The Energy Information Administration recently released the report for the week ending on December 25th. While analysts expected inventories to decline by 1 million barrels in the week, the exact opposite happened. Thanks to increased imports and an increase in production in the amount of 23,000 barrels per day, US oil inventories rose by 2.6 million barrels in the week; adding to the supply glut in the United States.
Saudi Arabian Oil Production – Another major concern with regard to oil has been production in Saudi Arabia. Although prices have been low, the country continues to pump oil in record amounts. On Wednesday, oil minister Ali Al-Naimi made it clear that the production is not going to slow. In a statement, he said “We will satisfy the demand of our customers… We no longer limit production. If there is demand, we will respond. We have the capacity to respond to demand.” This statement made it clear that not only will Saudi Arabia continue pumping oil at high levels, but they are also likely to increase production.
How Long Are Declines Likely To Last
Given the current circumstances with regard to supply and demand, I'm not expecting to see the value of oil climb at any substantial rate in the near future, or in the foreseeable future for that matter. The reality is that even in the midst of a massive supply glut, oil production countries all seem to be growing their production in an attempt to take a larger market share in the industry. This is going to lead to further problems and further declines in the value of oil.
How Binary Options Traders Can Take Advantage Of The Trends
Since we are expecting that oil is likely to continue declining, binary options traders should be looking for put option opportunities as a way to follow the trends down to the profits. However, that's not the only opportunity here. There are several assets that are highly correlated with the value of oil. For example, Exxon Mobile and other oil and gas companies as well as energy companies like EDF and E.On are likely to decline. So, look for put option opportunities on these assets as well to expand your gains. Read more economic news by TheBinaryAdvisor.
What Do You Think?
Where do you think oil is headed moving forward? Let us know your opinion in the comments below!
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