With oil tanking and the euro sliding under 1.20 quicker than expected by many alongside major indexes rocking back and forth to start the new year (Monday has seen the DOW down 300 points, NASDAQ down 70 points, and the S & P 500 down 25 points), it looks be an intraday trader and brokerage houses dream to begin January across all assets. Traders and brokers thrive in this environment with volatility usually translating into more opportunity and commission volumes for broker/dealers and exchanges as witnessed in the final few months of 2014.
Igniting the divergence narrative to close out 2014, we saw the central banks of Japan and Europe looking to triple down on monetary easing in efforts to stave off lagging growth and what they perceive as deflation…while the United States still considers the impact of a rate hike schedule to begin 2015. Not to mention the Russian ruble crisis still working itself out and the worlds second largest economy China, which seems to be happy rolling along while attempting to slowly liberalize its banking sector and foreign exchange regime as reported here on LeapRate. Markets are definitely a bit jumpy, but back to oil…
Current oil price factors include the following:
– Concerns about weak global demand, particularly in Europe, Asia and Latin America have been a big factor.
– But there’s also a bit of a supply glut. The United States is now a big producer of oil thanks to the shale gas boom.
– New reports showing Russian oil output at post-Soviet era highs and Iraqi oil exports at near 35-year peaks
Below are some charts for you to ponder showing the one year price chart of oil and a supply and demand graph from the International Energy Agency:
It all comes down to ECON 101 – supply and demand, relatively tempered demand and extra supply = lower prices. Another contributing factor is the strong dollar rally which makes commodities priced in greenbacks such as the majority of oil cheaper for all if the drop like we have seen is relatively steep enough. The obvious winners in the drop in oil is average consumers who will benefit from a little savings at the pump. If the strong dollar rally continues into the year, who knows where oil could end up ranging and what this will mean for volumes in the trading industry. Recent weeks have seen wild predictions already come out from as low as $20 all the way to back over $100. As always use caution if you choose to trade on oil’s volatility.