Why Oil Costs Will Maintain Falling



As you may be effectively conscious in case you are an everyday reader of my musings right here and elsewhere, I usually favor a contrarian buying and selling model. That comes from years spent within the interbank foreign exchange market, the place the intraday nature of most desks’ buying and selling meant that trades turned very crowded in a short time. As soon as a transfer bought underway and gained momentum, it wasn’t lengthy earlier than almost everybody was positioned the identical method, a scenario that skewed the chance/reward in opposition to that course. If everybody is brief, there are few left to promote, and even a small transfer up can induce a panicked rush for the exit…a traditional quick squeeze. And the identical may occur the opposite method round too if everybody was a purchaser.

Oil, although, will not be foreign exchange.

In a foreign exchange commerce, if you end up quick one foreign money, you’re inevitably lengthy the foreign money on the opposite facet of the commerce. If you happen to purchase USD/JPY, say, you go lengthy {dollars}, however you concurrently go quick the yen that you just purchased these {dollars} with. That signifies that, sooner or later, it’s important to cowl that quick and sq. up. With oil, although, one facet of the commerce is a commodity…it may be used and consumed, and it’s topic to produce and demand fluctuations. If financial situations are unhealthy and demand is falling, say, suppliers nonetheless have to promote their manufacturing, and can achieve this at ever decrease ranges relatively than go away themselves with a giant storage drawback.

That signifies that strikes could be sustained longer, and due to present situations, we…



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