Over the past year, the oil market has been feeling the pain. However, throughout the last few days, we've seen gains in the market. Today, we'll talk about the two major pieces of news that are causing the gains, what we can expect to see moving forward, and how binary options traders can take advantage of the trends. So, let's get right to it…
What's Causing Growth In Oil Prices?
If you want to know why we're seeing gains in the value of oil, it's important that you understand why the value of the commodity is falling in the first place. The reason for the decline is simple. There is far too much oil being produced. In the world of commodities, the law of supply and demand dictates the price. Therefore, when supply is high and demand is low, we tend to see declines in value. Adversely, when demand is low and supplies are high, we tend to see values climb. Currently, the world is producing far more oil than it is using; 2 million barrels per day more to be exact. That's putting strain on the market and has caused the drastic declines in prices that we've seen. However, big news with regard to supply is becoming available…
OPEC – First and foremost, let's talk about the world's largest oil producers, OPEC. The secretary general of OPEC, Abdulla al-Badri has announced that he is looking for ways to solve the supply glut issue. Currently, he is calling for OPEC members as well as non-members to come together and work to solve the supply glut problem.
US Oil Declines – One of the larger oil producers in the world is the United States. However, the country has noticed declines in oil production. In September, the amount of oil produced by the United States fell by 120,000 barrels per day. While that's a drop in the bucket when compared to the 2 million barrel per day supply glut, it's a sign that things are moving in the right direction.
With US oil production falling and OPEC calling for a solution to the supply glut, the value of oil has begun to rally as investors believe that we're finally seeing important changes.
What We Can Expect To See Moving Forward
When it comes to what we can expect moving forward, I have two different opinions that depend on exactly how far forward you intend on looking. Here's how I see it…
Short Term – In the short run, we're likely to see more improvements in the value of oil. As OPEC works to solve the supply glut problem and the United States oil production continues to fall, it only makes sense by the law of supply and demand that we would continue to see improvement in value.
Long Term – In the long run, I'm afraid that we're headed into a very vicious cycle. As supply starts to fall, the price of oil will climb. However, when this happens, more oil will start to be produced yet again; ultimately creating a new supply glut. Therefore, in the long run, we can expect to see more turbulence ahead.
How To React To The News
Since we can expect to see more improvements in the value of oil in the short term outlook, now is the time to start looking for call option opportunities. To do so, follow trend lines and look for support. When the value of oil reaches support, we can expect for it to climb. So, it's at this point that you'll want to purchase call options. However, keep an eye on the news surrounding oil. When production starts to climb again, we can expect more turbulence. So, you'll want to start looking for put option opportunities.
What Do You Think?
Where do you think oil is headed and why? Let us know in the comments below. Read more financial news by TheBinaryAdvisor.
[Image Courtesy of PetroSync]