The international petroleum market is something of a puzzle to most investors and observers. That’s primarily because there are so many factors that play a role in prices, supplies, and availability at the retail and wholesale levels. Government policies, wars, weather patterns, and dozens of other things play a role in the per-barrel price of crude petrol.
In securities and commodities exchanges, the perbarrel, US dollar price is quoted as a sort of global default metric, regardless of which nation is doing the selling or buying. As fuel prices drop or rise depending on the day, what do traders need to know to make it through the upcoming year? While it’s impossible to predict oil prices, it is possible to look closely at the factors that influence the price. From that kind of analysis, it becomes a bit clearer what the short-term and long-term price dynamics will be, at least in general terms.
Prices Likely to Move Upward
There are four central facts that play into the current scenario with regard to petroleum:
- Based on current US government policy, there will probably not be any additional use of the nation’s SOR (strategic oil reserve) before the first quarter of 2023. Compared to the volume of petrol in the strategic reserve, it sits at about 50% of its 2012 levels.
- Since the middle of the year, prices have come down quite a lot from their mid-2022 peak of almost $115 to around $85. The reasons for the pullback include lower demand, the use of the US SOR, and a sluggish international economy.
- The Ukraine-Russia war has played a central role in the dynamics of petrol’s value, supply, and demand. The latest round of European sanctions could cut Russian exports of the commodity by about 25%. While political turmoil in Iraq and elsewhere in the Middle East has the potential to reduce production even more.
- The upcoming potential for pricier crude petroleum could be a result of a relative increase in demand. Even though the international economic slowdown, in isolation, would point to less costly oil, the much greater drop in overall production supply is likely to more than outstrip decreases in demand. The end result, if that is indeed what happens, would be generally more expensive petroleum throughout 2023, with the exception of the first few months.
CFDs Offer the Safest Way to Trade
Why do so many individuals trade crude oil via CFDs (contracts for difference) instead of buying petrol-based stocks, futures, or commodities directly? For experienced and new investing enthusiasts, CFDs offer several significant benefits that don’t come with other ways of buying a stake in the oil market. Many of the world’s top online brokers offer CFDs due to customer demand. What are the advantages of using a contract for difference compared to purchasing petrol via another instrument, like a futures contract, stock, or option?
There’s no need to own the underlying asset. Buyers own a contract, not oil, which means there’s never an obligation to fulfill an order with actual barrels of petroleum, as is the case with some options and futures contracts. CFD owners can purchase smaller amounts of a given asset. Thus, the entry price is lower for most everything when using a contract for difference.Getting into and out of CFDs is as easy as clicking a button on your trading platform, just as you would do when acquiring or unloading a share of corporate stock. There are no negotiating fees, settlement charges, or surprises. Most brokers don’t charge a commission on the instruments. Instead, they make their profit on the small bid-ask spread that is directly absorbed by the trader up-front.
Ukraine-Russia War Will Still Matter
One wildcard in all petroleum-related pricing activity is the Ukraine and Russia war, which began in February 2022 and continues unabated. Because Russia is one of the major global producers of the prized commodity, the nation’s policy during the war has had a profound effect on the international supply, demand, and wholesale cost. In addition to standard supply and demand issues related to the war, there is the question of European sanctions. Most of the policies enacted by the EU have sought to curb the continent’s dependence on Russian crude. Recently, those very sanctions have led to a reduction of about one-fourth of Russia’s exports. However, Moscow should have no trouble finding buyers for whatever amount of petrol Europe turns down, so precious is the commodity. The general effect of the war has been to reduce world supply and place upward pressure on petroleum’s worldwide prices.