In the past 18 months the price of crude oil has fallen by 75%, from $110 a barrel to under $27. Yet this time the benefits are less certain. Although consumers benefit, producers are suffering grievously. While most major oil companies are slashing their budgets and jobs, some of the biggest oil companies like Saudi Aramco have not cut back on production.
The effects are spilling into financial markets, and could yet depress consumer confidence. Perhaps the benefits of such ultra-cheap oil still outweigh the costs, but markets have fallen so far and so fast that even this is no longer clear.
Why the price of oil is so low?
Low price of oil is not caused by one single issue, but it is the sum of many factors.
- The effets from depressed global economic growth and the Chinese economy coagulation is dragging oil down
- Iran’s participation in the oil market gets the oil-producing countries to compete for market shares
- State oil cartel OPEC has maintained an aggressive price war, and has agreed to lower production quotas. OPEC want’s to drop the smaller and more expensive oil-producing countries out of the game, such as the United States and Russia
- The oil’s demand and price is rushing down also because of increased energy efficiency, environmental awareness and increased use of alternative fuels.
How can I invest in crude oil?
The easiest way to invest in oil is through exchange traded certificates. They are equipped with low expenses, and they follow closely oil future markets. Example Nordea Bank’s so called BULL OIL (BULL OLJYX1 NF) will rise at the same pace as actual crude oil. Exchange traded certificates are quoted in euros on the Helsinki Stock Exchange, in which case the investor’s expenses are not growing from currency exchange costs.
Another option is to invest via the stock exchange-traded funds. One o
f the most popular is United States Oil Fund. However, you should note that this option is quoted in dollars.
Third way to invest in oil is by investing directly in oil companies. However, a single company’s value may fluctuate a lot and that is why decentralized option to share the risk.
With too much global supply and the lowest price in nearly 20 years – there’s anxiety about a possible oil market meltdown.
Video: Oil Prices: What’s going on? – An Animation
Video: Inside Story – What’s behind the falling price of oil?