The market has seen many positive stories over the past week and a half thanks to a rate rise from the US Federal Reserve, but there is one story that seems to keep stealing the headlines and that is the ever-declining price of oil. After yet another ‘dead cat bounce’ (a short-lived and small recovery in the price of a falling stock), oil prices have shored up at around $36 a barrel having fallen several percent from their brief $38 glimpse under a fortnight ago.
While many consumers in ‘Western’ countries like the US and UK will undoubtedly consider this constant demise great news, with petrol/diesel and household gas and electric bills likely to fall even further now, there are a multitude of other countries whom depend on the export of Oil as a major source of income; such as Saudi Arabia, Iran, and to some extent even Russia, who are now reportedly suffering. These countries see the crisis as a huge impact to their economic recovery and eventual stability and with the US recently admitting it has accumulated a huge stockpile of over 1.3bn barrels, news that they have just undergone an interest rate hike (meaning overseas buyers will have to pay more to acquire it) means one of the largest importers is unlikely to be backing oil at higher rates anytime soon. None of these problems even take into account that the oil industry is likely to endure even more heartbreak when the International sanctions imposed on Iran get lifted and they are free to begin exports again and increase supply in a weakened market.
For traders and those who wish to dabble in a little spread betting on the markets, 2016 looks to be an exceptional year with early predictions of drops to just $30 a barrel looking to be overshadowed by end of year forecasts of prices as high as $70, that is if you believe some of the Russian media outposts. While we personally cannot see 2016 being that formidable a year with prices reportedly expected to double, a positive outlook from OPEC means we can see the oversupply clearing and an inevitable recovery of the commodity next year, rather than yet another period of record lows and inexplicable drops. But it is worth noting that a stable recovery is unlikely to be on the cards at all should any of the other major markets decide to follow suit and hike their own interest rates in the coming year. For any commodity traders who have invested heavily into the oil and natural gas markets as ‘safe bets’ over the year, to avoid a volatile and almost unpredictable start to the new year, you may be better turning your attention towards precious metals such as gold until Q2 of 2016 when a clearer picture of what is likely to transpire is on the cards or even taking a look at the currencies markets with a strengthening dollar against the pound and euro courtesy of the rise.