Trade in Groups

In the coming months, oil prices are likely to be volatile, and yet continue on an upward, steady trend. Crude prices can be volatile for psychological reasons; commodity speculators and short-term traders can pull the plug on their investments anytime, or bet on rising prices in the futures market, in order to secure their returns. Fundamentally, however, there are ever-increasing global demands for hydrocarbons, especially from developing countries (i.e. China and India). Supply is not able to keep up with demand, and thus has been plenty of upward pressure on prices.

In the short-term, the market will likely experience mixed results due to oil prices. In the U.S., unemployment levels continue to be low. Certain sectors remain strong. However, there are other major areas of concern that can exacerbate problems due to expensive crude. Combined with the housing market, credit crunch, and crude’s severe impact on the airline, transportation, food, and automotive industries, investors may find themselves seeking much less risky investments than stocks. Prolonged high oil prices may cause inflation to heat up in a hurry. Additionally, the media is neglecting political risk; a simple disruption in one or two key oil-producing regions can be an impetus for nasty effects on the market. Markets are currently moving along, with investors closely watching energy. A material triggering event may cause a sell-off.