When oil prices turned negative for the first time in April 2020, oil producers would pay you to take it off their hands.
Producers worried about reaching max capacity from storing all that oil because there were no buyers around.
That’s like the bank giving the robbers the key because there’s just too much money stuffing the vault.
The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell as low as -$37.63 a barrel.
And even though that wasn’t a good run for oil, this asset was still a buy opportunity with all the economic indicators considered.
What You Should Know about Oil
On an economic level, oil is a major resource for many nations. And the United States holds huge reserves of crude oil for consumption.
These oil reserves can also act as economic indicators for potential investors. As stated earlier, supply and demand can have an effect on its price.
As a result, you’ll want to keep your eye on The Energy Information Administration. They provide supply estimates of petroleum and other liquids.
With that info, you can see where the trend of supply and demand is going. Suppliers could either lower prices to get in more buyers… or if there’s a shortage in production, that could raise the price of the asset.
So keep an eye on the ratio between consumption and production.
Global Demand
You may also want to look at international markets and ETFs. Economic development in highly populated countries such as India and China can affect crude oil markets.
This is because of the global demand for oil and gas products.
Global Events
We don’t need to tell you how global events can affect supply and demand. The Coronavirus forced oil suppliers to give it away for free.
And during the 2009 recession, oil and gas prices dropped as low as 40 percent because consumers wanted to save money.
Government Policies
We love our free markets but the government still has to step in and coordinate things (for better or worse).
Sometimes that involves an increase or decrease in interest rates for oil suppliers that borrow to cover the costs of inventory storage, human resources, and production.
This can have a major effect on the structure of oil suppliers.
And don’t forget the government tax policies that can impact business performance and profitability.
If there’s increased taxation on oil, some companies will limit output and increase their prices on the consumer to offset costs.
And the opposite is true if it were lower taxes.
But because the burning of fossil fuels leads to environmental concerns, governments may put on the pressure to increase taxes or green-friendly regulations on oil and gas companies to lower production.
This affects supply and demand which will in turn affect the price.
So watch out for oil producers who can also adapt to “Green New Deal” type policies. And no matter what asset you want to trade, you can click here to learn how our algorithm and trade systems at BEP can potentially make you $34,680 every 13 days!