High Volatility in the Oil Markets

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Being a rather astute investor like most of you, I tend to only make investments that I feel are right for me or that are more than likely to pay off. While most of these are reviewed regularly, they are longer-term holdings that don’t require any intraday fiddling or spread betting accounts, but that doesn’t mean I don’t take an interest in these. I have a few accounts that I’ve opened courtesy of some decent reviews on sites like reviews.spreadbetting and recently I have been quite active on a few of them.

Petroleum / Crude Oil is the most widely traded commodity and since 2014 it has been going through a rather torrid time. Having once been over $100 a barrel, it sunk down to under $27 this February and only recently has it started to resurface, hitting a 2016 high of $44 the other day before ebbing back to circa-$41. A casualty of huge oversupply, OPEC’s late attempt to try and convince countries to limit their production and of course Iran being granted permission to export Oil again, the commodity had taken a rather large hit and by most investors’ opinions, is still not safe yet.  Fortunately though, despite numerous countries refusing to comply with cuts to their production levels in Doha, this year has seen a huge increase in demand from Saudi Arabia and India meaning the stockpiles are actually starting to be used rather than increased.

With oil now sitting firmly above the $41 mark, and as an investor myself, while I have enjoyed making a small profit off the market volatility and of course the cheaper fuel as a regular Joe Bloggs, I don’t see any more huge drops in its’ base price but rather a steady increase over the year back to the $60 mark, dependent on how many rate rises the FED decide to throw out this year. Although many of you may be wondering whether it is the right time to get involved or get out if you are already knee-deep, all the signs point to the need for the price to re-stabilize and it seems a reasonably safe bet to make.

So if you haven’t already dabbled in the Commodities market, check out some of the market news and try and wrap your head round it. It is a literal goldmine (excuse the pun) and for someone with the patience to tackle intraday trading, they can earn a relatively decent profit with the volatility being seen (just like the Kuwait strike and subsequent cancellation led to 3% jumps and then falls). Just make sure you are confident before placing any trades as it is a very different beast to your typical portfolio management.

Ryan Seymour

10 thoughts on “High Volatility in the Oil Markets

  1. Oil appears to be stabilizing around $40. The million dollar question is, what’s the new normal? I don’t think it’s $100 or more. Buy, will we settle at $60 or $80? I hope so, and I’m holding most of my oil shares hoping for a lift.
    Investment Hunting recently posted…Visa Stock BuyMy Profile

    • Yep, that is the big question and nobody really knows for sure. I do listen to CNBC from time to time (I don’t recommend it) and the ‘experts’ on there vary between $35/bbl to 85$/bbl by the end of 2016. So that is enough to tell me if the ‘experts’ have such a wide range of expectations then nobody really knows where prices are going.
      Captain Dividend recently posted…Recent Buy – Cullen/Frost Bankers (CFR)My Profile

      • Hi CD,

        I just commented to IH exactly what you stated, it’s all just a guess. No one knows where oil is headed. Not in the near term and definitely not in the long term. This holds true even more so these days as volatility in every market segment is that much higher. I always say, just focus on the dividend sustainability and you should be OK. Thank you for stopping by and commenting.

    • Hi IH,

      The reality is that no one knows where oil will head from here and what the new normal will be. With so many “experts” opining such a large range it just goes to show that it is all just a guess. All you can do is focus on the energy sector names that have sustainable dividends with both high and low oil prices. Thank you for commenting.

  2. As we indeed have no idea where oil will go, I keep my RDSA fa long as its dividend stays attractive. Right now, it is doing well on that area. With the adding of BG, I do hope they will be doing fine for the long run. I have considered working on an exit plan with covered calls…
    For now, I do that with KMI – I bought them the way down and I am in positive territory now days.
    ambertree recently posted…Recent Buy: SolvayMy Profile

    • Hi ambertree,

      These days it looks like many of our fellow dividend bloggers are cashing out of the energy sector. With higher oil prices and a rebound in many energy stock prices it seems like a good time to lighten up. I think RDSA, TOT and others still offer attractive safe yields and value. The only question, that no one really has an answer to, is where oil will head. If prices remain depressed for another year or so, I have a feeling we’ll be reading about many more dividend cuts in the space. Thank you for commenting.

    • Hi Dividendsdownunder,

      I agree with you to an extent, with technology allowing for more oil to be pumped out of the ground and alternative energy sources really becoming viable in the next decade and beyond but one thing I have seen over and over again in all markets is that no one can accurately predicted the future for anything. With that in mind I still believe we can see oil at $100 a barrel again just as much as we can see $10. If you called oil prices to hit the $20s in 2014 you would have been laughed at big time. The future is wholly unknown. I do not own energy stocks in my long term portfolio because I do not like the volatility in the sector and not because I like or don’t like oil’s prospects. Thank you for sharing your thoughts.

    • Hi SMT,

      One thing that I have come to accept is that the market is very irrational. Stocks, commodities, real estate don’t always follow traditional supply and demand equations especially when a group of traders can sway market prices with large buys or sells. I have no idea why oil is near $50 a barrel when all the talk for the last several months has been about the supply glut in the market. Some say the fire in Canada is disrupting supplies, problems in Nigeria and Venezuela, etc. but that’s nothing new. Definitely a wait and see situation. Thank you for commenting.

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