Turmoil In The Oil Market.

I've never traded oil futures before, in part because the high inherent volatility of the commodity combined with a leveraged environment would throw me significantly out of my current comfort zone, but also because I would rather learn to trade on sector of the global markets really well rather than many to a mediocre level.


Nevertheless, falling oil prices have hit the AIM substantially knocking back the majority of junior oil explorers/producers, so I have to keep a vague eye on the market even if I don't directly trade it.


In my opinion the major falls we've seen in oil prices ca be split down into a few major points:


1. OPEC Vs Shale

- Personally, I feel that one of the major reasons why OPEC has decided to maintain its current supply levels is due to a desire to try and drown-out the US Shale Oil producers from the market and allow the status quo within the OPEC to continue undisturbed by foreign input and disruption.


- Moreover, intra-OPEC there seems to be certain parties who don't want their dominance with the OPEC to fall, with Saudi Arabia being possibly the best example of this. From the outside looking in, it would seem that they don't want to relinquish their supply into the hands of other members of the OPEC and will therefore hold at their current levels for the meantime.


2. Global Growth

- The next fundamental point is that global growth levels over the past quarter really haven't been anything to write home about, especially in the major growth markets, with China growing 7.3% in its third quarter - its slowest growth rate in five years. This coupled with China being potentially described as a "statistically generous" country with regards to its economic figures, means that the downwards pressure we've seen regarding oil prices was on a balance of probabilities going to be reasonably likely.


3. Reducing Sanctions on Oil Producing Nations

- Another key point that we shouldn't ignore for indication for the future direction of the oil price, is Iraq, Iran and Libya, all of whom have said they intend on increasing their production levels by 2015. This does in part depend on the sanctions currently in place on Iran over its nuclear program, but I certainly would not be surprised by more downwards momentum in the oil markets assuming a global state of ceteris paribus.


All the best,

The Masked Stock Trader