The price of crude oil has slowly begun to rise again, hitting a high for 2016 very recently. Many companies have been hit hard because of the low price of oil, and many middle Eastern countries have seen huge issues with their national economies because of the low price. However, crude is up over $40 per barrel right now, and there have been some signs that it’s going to go up more.
Oil has spent a lot of time below $40 per barrel lately, and this surprise growth has been a decent lift for the industry. Many companies are not seeing huge gains, though, especially the larger companies like Chevron and Exxon Mobil. The increase in price has helped smaller companies find traction, though, especially as many are currently operating in the red because of the fact that many have a lot of outstanding debt and low prices have made them unable to pay back loans at the agreed upon pace. It’s created a ton of instability in the production and shipping business, and it might take some time before this price increase is helpful to them. Furthermore, if prices do not stay up for a prolonged period of time, it might not help them enough to avoid defaults or worse. Many analysts believe that oil needs to stay above $50 a barrel in order for the big companies to be profitable; the smaller companies probably need to be closer to $60 or more if they are going to survive. Short sellers in the traditional market should take note of this is this is something that they can safely afford.
An alternative view of oil is that the rally will not last, and that the higher prices could lead to a major selloff by those that have been waiting for some signs of life in the commodity before they offloaded their positions. This is a very real possibility, and one that you need to take into consideration. Right now, mid and long term positions on oil are very dangerous. Even most short term positions can be volatile right now, even if you go with something like a binary option. If you do trade crude, binaries are probably the safest way to do so simply because they are removed from the actual marketplace, they have lower risk amounts, and they have built in expiries which will help you to better handle the risk and volatility associated with them. If you are thinking of trade oil, keep this viewpoint in mind before you decide on a final trading strategy.
To a degree, we have already seen some of that panic based selling begin. Oil is still up over $41 at the time of writing this, but the price had dropped by over 1 percent on Friday, well before the close of the trading day. Lately, this seems to be a common theme for oil as the oscillations move its price up and down. But instead of the overall trend being downward or sideways, the trend line for oil is now pointing upward. How long this will last is unclear, but do proceed with caution as you begin to think about your trades.
Shorting the mid-sized oil companies in the traditional market is a good move if these analysts are correct. As oil struggles to stay above $40, there’s very little chance of companies being able to take advantage of $60 per barrel in the near future. Just know that shorts have a huge amount of risk associated with them if you do not put the proper stops in place to protect yourself.