Hot Features
Premium
Register for streaming realtime charts, analysis tools, and prices.
With many investors still harboring fears about stocks, commodities like oil have continued to attract investors from all over the world. Crude oil prices have recently gone as high as $117 a barrel due to unrest in the Middle East and threats of Iran/Israel confrontation getting realer every day. Even with fears that military actions could close the strait of Hormuz, which is one of the biggest route for oil supplies, oil continues to remain an appealing investment alternative for investors.
Prices recently eased and the markets slowed amidst speculations that the United States will release some oil from its Strategic Petroleum Reserve (SPR). With this, coupled with Middle East fears, oil prices have generally been following a bearish trend.
Analysts have insisted that the recent surge in oil prices is largely attributable to the fact that people were quite skeptical over the Iran issue;after all, the country does remain one of the foremost suppliers of oil among the OPEC countries. However, several analysts have also advised caution and insist that the general consensus, as often witnessed, could easily turn out to be wrong. Following an attack, “we wouldn’t be surprised if the initial impulse were a smaller-than-expected and briefer-than-expected oil price spike, followed by a stronger-than-expected oil price decline”, said Colin Fenton of JPMorgan.
The fact that Western countries can generally look to rely on their strategic reserves during any resulting conflict only serves to complicate matters even further. While a conflict can lead to market panic, the released strategic reserves will contribute to a shrink in demand as well a fall in prices;a similar scenario as what occurred in the first Gulf War.
Similarly, while the September 11 attack initially led to a significant rise in oil prices, months afterhowever,prices dropped by as much as 20% in light of wider and deeper economic implications of the attack.
The unraveling scenario hasin effect revealed that the recent jump in prices, as excitable as it may be for many investors, may not last as long as many people have predicted.
Excited investors must remember that oil prices have always been erratic.They must also keep in mind that asides complex supply and demand factors, one other important factor in price determinationis the wide variety of investors and speculators that are nearly always bidding for oil futures contracts.
Many major institutional investors are partaking in the oil market. Investors such as pension and endowment fund holders readily hold commodity-linked investments as part of a long-term asset-allocation strategy. Others, including Wall Street speculators, trade oil futures for relatively short periods of time to reap quick profits.
The bottom line is oil prices will not remain high for long.
