Oil prices have been dropping since the middle of 2014; however, the sharpest drop came in the latter part of 2014. From a previous level of around $110 a barrel to just touching below the $45 a barrel market, the commodity has shed almost 60% of its value. The fall is attributed to U.S. reaching highest level of oil production in the last 40 years as a result of the shale boom. As with all commodity prices; it is a story of supply and demand imbalance, more specifically, weak global demand and considerable oversupply. This clearly indicates that the period of low prices is likely to last. Clearly, this creates significant long term investment opportunities in Oil option contracts.
Investor Notes:
- Oil inventories at Cushing is the highest it has been in 64 years, soaring almost 70% to 54.4 million barrels.
- OPEC cannot be relied upon to stabilize prices as the group has no intentions of cutting production even if the price drops below $20 per barrel.
- The stronger dollar has also impacted foreign demand for oil and other commodities denominated in dollars.
- One of the biggest oil consumers, China, is experiencing its slowest period of growth for the last 25 years.
- Banc De Binary analysts predict that given the supply and demand fundamentals, oil prices are set to fall further, indicating a potential downward movement in End of April Oil contracts.