Oil markets have been incredibly interesting to watch for quite some time now. At this point, we've all heard of the supply glut. Unfortunately, we all know that little to nothing has been done to combat the issue in the market. In fact, there's a strong case that the oil market will crumble ahead. The case is built around the primary cause of price movement in commodities, supply and demand. Today, we'll talk about what we're seeing with regard to supply and demand, what we can expect to see from the price of oil moving forward, and what binary options traders should be keeping a close eye on.
Oil Supplies Are Massive And Growing
As mentioned above, we all know about the oil supply glut at this point. The big problem is that nothing is being done to fix the issue. In fact, while oil supplies are up, producers around the world are doing everything they can to produce more in order to take more of the market share. As a result, July is expected to be a record production month for OPEC. On top of that, in the United States, we're seeing growth in active oil rigs week after week. However, production isn't the only thing that's adding to the glut.
At the moment, new supplies of oil are piling in. However, with low end user prices, the profits that refiners see are starting to decline in a big way as well. As a result, of the smaller margins and high inventories of products like gasoline and diesel fuel, refiners have little incentive to produce more. As a result, crude oil inventories pile up in the background, leading to more of a supply issue.
Demand Is A Major Concern As Well
While supply is incredibly important, demand is a major factor as well. At the moment, demand is actually becoming an increasing concern. You see, in order for the price of oil to grow, demand growth needs to start catching up to supply. With global economic concerns, many are expecting that demand will decline.
At the end of the day, the price of oil can be used as an economic indicator. That's because when economic conditions are positive, consumers travel more and they don't worry as much about energy consumption. This leads to increased demand for oil and ultimately gains in the commodity's price. However, when economic conditions are negative, consumers travel less, and they pay attention to energy consumption in their homes. Essentially, when economic conditions are negative, consumers work to reduce their reliance on oil as a way to save money. As a result, oil falls in value on demand blues.
At the moment, economic conditions around the world are far from negative. Recent GDP results out of Europe and the United States show that both economic regions are on the brink of a recession. On top of that Japan continues to struggle after what many believe to be a weak economic stimulus package. All in all, economic conditions do not look to be improving around the world, and that could weigh heavy on oil.
Where The Price Of Oil Is Headed Moving Forward
Moving forward, I'm expecting to see further declines in the price of oil. As with any other commodity, oil is heavily dependent on the law of supply and demand. With supplies continuing to climb and demand continuing to decline, we have a perfect storm for big declines in oil ahead.
What Binary Options Traders Should Be Watching For
As binary options traders, we know that things can always go in either direction. This case is no different. While it looks like oil is going to see further declines in value, no one can tell the future. With that said, there are two things that binary options traders should be watching for when trading oil options. First and foremost, keep a close eye on what's going on with supply. In late 2014, we learned what can happen when supply gluts get out of control. Also, keep a close eye on economic conditions. After all, with oil's demand heavily dependent on economic conditions, watching what's going on in this arena can give us a great idea of where oil is headed moving forward.
What Do You Think?
Where do you think oil is headed moving forward and why? Join the discussion in the comments below!
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