Oil has rebounded over the last several weeks, as you may have noticed. This is largely due to the increased amounts of confidence that hedge funds have found not just in oil prices itself, but in OPEC, the organization that the world’s largest oil producing nations are members of. Prices have recently risen by more than 3 percent, settling up over $52.40 per barrel by the end of the trading session on Friday, January 20th. This is still nowhere near the $120+ that we were seeing a few years ago, but it’s also a huge step up from the sub $40 per barrel prices of much more recent times.
On top of this, the number of futures contracts that have been sold per trading session has just hit an all-time trade. In other words, oil as an investment is more popular than it has ever been in the past. This has undoubtedly driven the price of the commodity upward, but it’s also created a base of stability which will help ensure that the price cannot drastically drop over a short period of time.
Confidence plays a huge role in the pricing of commodities, and OPEC is the biggest and most visible organization in the world when it comes to crude oil. Not only is oil the world’s most heavily traded commodity, but OPEC has almost complete control on the world’s oil supply, and thus has a dramatic amount of sway over the price per barrel. There has been a lot of strife between OPEC members over the last decade or so, with Saudi Arabia increasing production and driving prices down. Now that this has ceased and OPEC has regained stability when it comes to pricing, the price per barrel has begun to rise steadily. And because many of the big name hedge funds have now jumped on board with this too, it’s quite likely that we will see oil continue to climb for the foreseeable future.
Trader psychology plays a large role when you are entering and exiting positions on a daily basis, and although the general emotions here are positive right now, it is important to keep your fingers on the pulse of what the public is thinking. Oil is climbing now, but next week this could change. If you want to be a successful short term trader (and who doesn’t?!), then you need to pay attention not just to the fundamental and technical numbers that impact and monitor prices, but also the sentiment of those that are trading. After all, it’s not any indicator that moves prices, but supply and demand. And the demand for oil is wholly determined by those that are buying and selling it. That can be measured in a very accurate way through trader psychology.
Most traders don’t have access to the commodity futures market. It’s not that futures contracts are tough to understand or to trade, but most contract sizes are geared toward commercial traders, and not individuals. This leaves the majority of people wondering how they can effectively use their knowledge of what is happening with oil, or any other commodity, and turn it into money. Both the binary options market, and the contracts for difference (CFD) market give traders access to trading oil as an underlying asset, and thus not just watch what they believe will happen come into reality or not. Even with a relatively small amount of trading capital, it is possible to profit from oil’s movement. Now that it’s become more predictable, this is a great time to become involved with studying and trading what the commodity is doing.