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Oil For The Second Time Around

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Oil For The Second Time Around

It seems like the doomsayers who predicted a fall in oil prices to $30 a barrel in 2016 may have been pessimistic in their predictions.

The price of Brent crude oil, the global benchmark for oil prices, fell to a low of $35.10 in January, but closed on Friday at 48.10, just below its 2016 peak of $48.50. Experts are predicting that this trend will hold during 2016. While this is considerably below the price per barrel from two years ago, this price may well be far more sustainable and reasonable in the longer term.

 

What do recent trends tell us about oil prices?

Barely two years ago, the price of oil was at a high of $116 per barrel. Any price over $100 per barrel was the expected break-even point to guarantee the oil company’s survival. However since June of 2014, the price dropped rapidly by over 70%. Beginning 2015, Brent prices had slumped to $47.86. However, forecasters and investors alike watched with more confidence as the price steadily increased for the first half of the year reaching a high of $65.15 in May. The price rise was short-lived, however, as once again prices fell, getting to a low of $36.85 in December. So far this year, the price has steadily increased, from a January low of $27.36 and is closing on $50 as April ends.

 

It’s All About the SPD: Supply, Production Cost and Demand

Any economist will tell you that there are three major factors which determine price: supply, the cost of production, and demand.

 

Supply loosening

Supply has traditionally been the tool used by oil producing nations to keep the price at preferred levels. However while OrgPEC countries Saudi Arabia, Venezuela, and Qatar, along with Russia, agreed to a production freeze at current levels, Iran, which recently had trade embargoes lifted, indicated that it wished to increase production. Also, the United States agreed in October last year to export crude oil, thus ending a 40-year ban. In December 2015, the first such shipment of crude oil on board the Theo T tanker left Texas, bound for France. Further consignments of liquefied natural gas are being shipped to various countries in Europe, with 9 million metric tons expected to be developed by Texas company Cheniere Energy Inc. per year.
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Production Cost Dropping

Increased investment in shale oil production means a greater investment in technology, which leads to better extraction practices and eventually lower costs. While these costs were initially high, the improved efficiency in production due to more effective drilling techniques has reduced these costs to a stage where shale oil production is more profitable than it ever has been in the past.

 

Demand still demands

As of yet, no profitable, sustainable, fuel alternative is available. And in the summertime, when commuter travel increases, there’s no reason to expect a serious downturn in demand over the next few months. Even with more energy-efficient vehicles and push for more environmentally sustainable methods of travel, there is no indication that demand for oil is falling in the US. As always, an essential product will command prices which the consumer is prepared to pay.

 

The points are:
  • Boom, bust, boom. Swings and roundabouts. However it’s termed, the oil market has always been erratic. When oil was in short supply, prices rose. This led to more competitors entering the market, thereby increasing supply. Once supply grew again, prices fell. However as noted, the supply freeze by Russia and some Opec countries is being balanced to some degree by Iran once again being free to sell its products and the US lift on its export ban of crude.
  • Increased customer choice. With only a few major oil producing countries in the world, there has been a tendency to use oil as a political or strategic weapon. Accept the price on offer, or no sale. With this threat mitigated by a more diverse choice as to where to buy from, sellers will be aware that consumers no longer have to accept excessive prices for oil.
  • The value of the dollar. As long as the US dollar, the currency used to trade oil in, remains weak, the price of oil increases. However with the dollar steadying against other currencies, this should lead to a more sustainable price of oil.

 

So, what will the rest of 2016 bring?

Oil remains as one of the most heavily traded and volatile commodities on the planet. However with a greater than expected stability in supply, coupled with a slowly strengthening dollar, and a minimal shift in demand, it can be hoped that the extreme price variances of the past few years are tempered so that oil remains profitable, but not always to an excessive extent.

 

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Commodities

Gold Prices Reach Historic High, Breach $2,000 Level

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Gold Prices Historic High

For the first time ever, gold prices reach a historic high level of $2,000 today, even reaching a high of $2,049.18. Judging from the way the markets are still active, there are signs it’s still going up. Buoyed by a week dollar, low Treasury yields, and fiscal stimulus, gold keeps rising. On Monday, worldwide holdings in gold ETFs totaled 3,365 tons, and prices have surged more than 30% YTD. As prices rise during the day, there are yet no indicators that the bull market for gold is ending soon.

Related Article: How To Buy Gold For Your Investment Portfolio

Safe Haven

Along with government securities, dollars, and others, gold is a safe haven investment. Safe havens are assets that investors turn to during market turmoil. investors turn to during market turmoil. These stocks usually keep, or even gain value during periods of hardship. As they aren’t correlated with the economy, safe haven value can rise in value in a market crash.

While the gold prices reach historic high. Gold has profited from the pandemic and its resulting economic downturn. While US Treasury yields have dropped to below-inflation levels, lowering their value. Gold meanwhile, does not pay an income. In a booming economy, interest levels go high, which means higher yields for bonds or securities. For gold, the lack of yields makes it strong when the market crashes.

Gold Rush

The Fed’s earlier decision to lower interest rates to near-zero pushed investors to look into gold. It serves as an insurance asset in case stock prices go down. With the depreciation of the dollar, gold is the current safe haven choice for investors. With a weaker dollar, other currencies rush to buy gold, hence the historic highs. According to Rhona O’ Connell of StoneX Group: “Gold is a haven.  It doesn’t have anyone else’s political or financial risk associated with it.”

Other factors contributing to the rise in gold prices are international in nature. The tension between China and the United States over trade issues is one. Lately, some analysts think that the recent Lebanon explosion also pushed prices higher.

Stimulus plans also have an effect on prices. Some see the rising stock prices on news of a new stimulus package as a signal. It means stimulus money is powering the stock rally, and might not be sustainable.  This also leads investors to turn to gold instead.

Market strategist Margaret Yang believes the rise will continue in the next months. She said today’s low-interest rates and fiscal stimulus makes gold bullish for the mid and long term. And with the elections in November, gold prices may swing further depending on the winner. Analysts think that gold can breach the next psychological barrier of $2,500 within the year.

Pushing Precious Metals

Gold isn’t the only precious metal winner lately. Silver prices have also spiked to more than 30% year to date. Some analysts even believe that silver has the potential to outperform gold. Once the world economy recovers, industrial consumption will return. This in turn will spur demand for silver, which many industries use.  Already, the gradual reopening of industries has increased demand for silver. Its increasing applications in the medical and telecommunications fields helped with the demand. Apart from silver, platinum and palladium are also enjoying high prices this year.

Watch this video as the gold prices reach a historic high level of $2,000:

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Latest Update On Oil – Expected to Settle Between $45 and…

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“Oil is going to a new price point because of the revolution in production,” said Bill Perkins, chief investment officer of energy-focused hedge fund firm Skylar Capital Management. Perkins believes the price of crude could fall as low as $45 a barrel. He is personally short, a bet that the price of the commodity will drop. He believes oil will settle between $45 and $80 a barrel in the next year.

“Companies are harnessing amazing new technology to destroy the traditional energy value chain,” Perkins said. “There’s a lot of money to be made on that.” “U.S. energy names remain a significant net exposure for equity long/short managers who added longs and cut shorts after October’s trough,” the report said. “If pressed, one could interpret this positioning as bullish for energy stocks.”

Andurand thinks crude might hit $50 a barrel within the half-moon of 2015 and so rebound to a high of $70 within the fourth quarter. He also said the oil market is oversupplied by between 1.5 and a couple of million barrels per day, given weak demand, low disruptions to produce and enhanced production by nations that do not belong to the Organization of the oil mercantilism Countries.

“OPEC is not the swing producer anymore. U.S. shale oil producers are, but will take more time to react to prices than OPEC—it is a game changer that will lead to more volatile prices and bigger price ranges,” he added.

Morgan Stanley aforesaid the worth would wish to fall as low as $35 or $40 a barrel to prevent production and rebalance provides.

Still, the bank noted that the worth can doubtless rise eventually.

“Oversupply is probably going exaggerated and therefore the market is also content regarding side risks,” the report aforesaid.

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Commodities

Investing in Energy Markets Part 2: Oil, Gas and Energy

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It’s no secret that the energy industry is very profitable, with oil and gas making up 80% of the market.

 

Thus, these two resources attract the most people. They are the best energy investment resources due to high demand and wide range of options. However, with energy scares fresh in our recent memory and the climate change movement greatly affecting energy policy, new alternatives are constantly being sought.

Terror group ISIS may make $3 million a day selling oil

Everything that we do requires some type of energy. As a result, the price of energy affects the going rate for other commodities as well. When the price of oil increases, the price of transporting goods goes up as well.

That is why the cost of milk fluctuates and why your favorite imported coffee beans are more expensive than Folgers. Factors that contribute to these prices include geopolitics and natural disasters, but can never truly be accounted for in full. That is one of the underlying points to understand and accept about energy markets. Something can always go wrong. Typically, it doesn’t, but when it does things can get hairy and fast.

TYPES OF ENERGY SECTORS: That could affect your Household

Nuclear Nuclear power actually produces 1/10th of the world’s power, without emitting carbon. The United States and China have roughly 75% of the world’s nuclear plants with India and Russia also tapping into the market.

“Green” and renewable energy companies You can invest in different companies that place an emphasis on renewable resources by using the stock market. This option is optimal for investors who like the idea of green technology but do not now want to run the risk of investing in developing companies directly. This market has always been tricky from an investment perspective due to volatility. If you have an appetite for risk, however, this is a good place to look.

Modern Energy (solar, wind, geothermal, transportation, efficiency) Modern energy is made up of three major components or categories. They are wind, solar and biomass. The renewable sector is expanding at a rapid rate. We have witnessed a steady employment increase in the energy sector since 2011 with no end in sight. All types of investors and speculators are flocking to the natural resource markets in attempts to get out ahead of the renewable energy trend that could be the way of the future.

Big Oil In 2010, the world market for oil witnessed an incredible increase of 32%, to over $2,100 billion. According to estimations of oil segment professionals, the market’s value will hit $2,683 billion in 2015. The competitiveness of the global market of the crude oil is explained by its limited resources and mankind’s insatiable appetite for growth. This factor should not be disregarded easily. Our desire for more explains the majority of the energy marketplace.

Gas sector The market of natural gas reached $18.5 billion by the end of 2011. Demand for gas has recovered to match and surpass pre-recession levels. The US prices for gas are half of those in Asian countries and the EU. Gas demand decreased 3% in 2009, but at present is on the rise.

Electricity Buying the stock of electricity companies is the preferred way of entering this marketplace. The majority of the participation in electricity markets, however, takes place in the futures markets. Since power companies are constantly projecting and calibrating their loads, the futures market is the only place where investors with this sort of risk profile will feel that they belong.

Coal Many non-coal energy sectors directly depend on the performance of coal because burning coal has been proven to produce enough energy to support high demand. Due to recent regulations in the US by the Environmental Protection Agency, coal has taken a minor hit, but until a massive, institutionalized adoption of newer technology, it is highly unlikely coal will be going anywhere for the foreseeable future. In other words, coal is very much a barometer for this market. Though it is unlikely to happen any time soon, a massive dip in coal production would likely signal the emergence of a new viable energy source.

Hydro Hydropower energy is still very limited but there has been over $75 billion in investments pledged to R&D before the year 2020. There are some companies worth checking into, but for now this is very much a long term play.

Energy Funds These funds are established with companies related to the energy field. Be aware that some energy funds are more successful than others and produce a higher return than others. Often times, the energy funds are established to diversify various portfolios and minimize risk.

Read more on How Natural Resource Distribution affects your wealth

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