The FTSE 100 started the trading session in the green. However, as the day progressed, the index started to slide. Ultimately, the declines can largely be attributed to blues in the oil market as oil supply glut concerns proved to be center stage. Today, we'll talk about what's going on with oil, what it has to do with the FTSE 100, and what binary options traders should be watching for ahead.
Supply Glut Concerns Take Center Stage
As mentioned above, the FTSE 100 was weighed down by the oil market today. We'll get into what oil has to do with the index a bit later, but for now, let's focus on what happened in the market.
Today, news broke that Libya's oil production increased by more than 50,000 barrels per day. The total the OPEC producer is producing now sits at 885,000 barrels of oil per day. This shows that Libya is getting close to the 1 million barrels per day that they are hoping to reach at some point soon.
On the other hand, Nigeria's oil output was also a major cause of concern. According to various reports, oil production in Nigeria is likely to increase by 62,000 barrels per day by August.
You may be wondering why two OPEC producers are producing more as the rest of OPEC producers look to cut production. The answer is relatively simple. Right now, both Libya and Nigeria are in times of war. With geopolitical conditions costing these regions massive amounts of resources, they are exempt from the production cuts imposed by OPEC.
Ultimately, with rising oil production in Libya, Nigeria, the United States, Canada, and Brazil, many are starting to wonder how much of an effect the OPEC supply gluts are going to have on the market. In fact, John Kilduff, founding partner at the energy hedge fund at Again Capital, recently had the following to offer in a comment…
“Not only do we have a struggle with production and an ineffectual OPEC, non-OPEC production regime, but you have this overhang again that is not clearing, and so that is what this market is reacting to… Now we're in the process of the market playing chicken with OPEC and non-OPEC… [These producers are] going to have to react again in a significant way to get the price to stabilize and go back up.”
What This Has To Do With The FTSE 100
While it may not seem as though the news with regard to oil would have much of an effect on the FTSE 100, the truth is that the two assets are strongly correlated. You see, while only 5% of the companies listed on the FTSE 100 work within the energy sector, these companies are massive, representing a large chunk of the market share of the index. In fact, Royal Dutch Shell is the largest company listed on the index with BP being in the top 10. With such large market shares taken by oil related companies, any movement in the oil industry is going to cause movement in the index.
What Binary Options Traders Should Be Watching For Ahead
Moving forward, binary options traders should be keeping a close eye on the FTSE 100. In particular, pay close attention to the oil sector and commodities as a whole. As a commodity heavy index, any movement in commodities will likely lead to movement in the FTSE 100. Also, keep a close eye on the political news surrounding the UK. With the Brexit moving forward, politics can lead to wide movement. Finally, inflation is another key figure to watch with regard to the FTSE 100, or really any asset in the UK for that matter. With the Brexit causing massive climbs in inflation, we're starting to see economic side effects of the divorce, leading to movement in the market.
What Do You Think?
Where do you think the FTSE 100 is headed moving forward? Join the discussion in the comments below!