The most important commodity, oil, has become one of the most volatile trading instruments of all markets in recent years. Movements of 3% or more in the oil price are the norm. Just for comparison, the volatility of EUR/USD averages around 0.5%. The currency market is considered to be the fastest and most volatile. This has changed completely.
Oil price highly susceptible to fluctuation
Dealing with oil is a political and market-technical matter. Especially in times of crisis, as is currently the case between the USA and Iran, the oil price can fluctuate extremely. But what is the price of oil? The non-expert speaks only of “oil”. The experts have to differ here in the trade very well, since there are more than 32 different types of crude oil on the market. This is comparable to the ice cream parlour, where there is not just one variety. When we talk about the oil price, we usually mean the American WTI (West Texas Intermediate) or Light Crude Oil. The European Brent, which is wrongly called so, is also often mentioned for comparison, since it is almost 10% more expensive. This has to do with the quality (weight) of the oil. The heavier the oil, the cheaper, as refining becomes more expensive.
Whatever oil is used. The fact is the world is addicted to this raw material. According to conservative estimates, 92 supertankers of crude oil are consumed every day. Without oil nothing works on our earth any more. It is not mentioned that the price for WTI fell by almost 23% from April to June this year. Converted to the stock markets, this would certainly have been read in the media and would have been described as a catastrophe. Our previous year 2018 was even more volatile, when the oil price dropped by just a little less than 45% in one slide. Only political tensions are bringing a slight recovery back into the price. Rumours are saying that the political disputes are being staged so that the price can be kept stable.
A few years ago it was thought that we would run out of oil at the end of 2030 with this thirst for oil, but now there is too much oil on the market. The picture has turned upside down.
Fracking made it possible
The producing countries have increased in recent years. The most important of these is the US, which has officially become an oil-exporting country since 2017. The fracking has made it possible. The environment is damaged, and the CO2 evasive in the production process does not improve the environmental performance. Health aspects have never played a role in the oil fallow. Europe is currently being forced to build new LNG ports so that they can receive gas supplies from the US and Canada.
Oil price on the rise?
The current situation is wait-and-see. On the one hand there is too much oil on the market, on the other hand the Iran crisis is worsening again. On top of that a Russian-European pipeline has been closed because contaminated oil has been delivered. In addition, the price is at a significant resistance (magenta line in the chart). The next energy boost will show which direction the price will take. If the resistance is broken at 57.93, the way to 60.21 is clear. If this does not happen in the foreseeable future, lower prices until 55.80 are to be expected again.