Yo-Yo Oil Price Keeps Everyone Guessing

Market Update


The price of oil is yo-yoing so fast that it’s hard to keep up with the current price.

Everyone knows by now that the price per barrel as slumped to the lowest price for years, forcing oil companies to slash jobs, shelve exploration and cut every cost they can.

Only a week or two back, the price hit the lowest for many years at $28 a barrel.

Since then, the price has hit $40 a barrel twice and fallen back again.

The price is now leaping and dropping on an almost daily basis and predicting the swings is impossible.

No long term gains expected

The major oil index, the CBOE Crude Oil Volatility Index shows that these gains are not really portents of a rising market, but just small gains in a market that will probably rise and dip for a good while yet but still stay depressed.

OPEC, the trade body for oil producing countries, has agreed to freeze oil output at January levels, but the market is still grossly over supplied.

OPEC feels the price of oil will slowly work back to the $100 a barrel mark over the next decade.

The latest Chinese trade figures, showing a 25% drop in exports and a 15% slump in imports won’t help has manufacturing in the Asia Pacific’s biggest economy slows down.

For investors, staking cash on oil is a gamble.

Blip on the radar

The sector is likely to see even more of a jobs shake-out the longer the crisis lasts, with companies going under of merging in a bid to stay alive.

Maybe a better place to look for profits are companies that are big energy users who are likely to see their costs fall and profits grow as their costs reduce.

Bank analysts do not expect to see the price of oil to rise by any significant amount in the short-term.

Barclays, Julius Baer and Goldman Sachs are united in the view that rallying commodity prices, including oil, are a blip.

The latest producer to announce a stockpile is the USA, with a crude inventory of 522 million barrels – prompting fears that while oil producers have an oil lake to clear, prices will stay low.


Source: Investing.com

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