The oil price forecast and what comes next
Experts predict that oil price will cost $20. However, other experts are sure that oil will cost $120. We analyzed all the factors and made our own conclusion.
Many experts made a mistake, predicting the price of oil at $120 in 2015. However, oil doesn’t cost $20, as other experts claimed. So, what will the oil prices be in the next six months? Analysts analyzed factors that can keep the cost of Brent crude oil at a record low level and then promptly return it to the area of $120.
What is next?
Continue to buy short-term binary options PUT on oil or start to buy the long-term binary options CALL?
Why oil will cost $20 per barrel
China is slowing. This is the first and most important factor in favor of cheap oil. Everyone knows that China is a major consumer of oil in the world. Remember how the world reacted to the collapse in China's stock market. Now, look at the economic calendar and data for China.
Already, it is clear that the Chinese economy is in a downward trend. A close correlation of assets and integration of the economies will only contribute to the reduction of the European economy and the US economy after China. According to statistics, the growth of oil consumption is only 1% per year, while its supply increases by 5% because of OPEC countries and Russia.
One of the largest suppliers of oil to the world market is Iran. Until recently, all oil supplies from Iran have been blocked by sanctions.
If the process of lifting the sanctions is fully completed, Iran will significantly increase the supply of oil in the world market. Iran remained under the influence of the sanctions for a long time, which negatively affected the country's budget and its balance of payments. This means that Iran will try as quickly as possible to fill its budget deficit, increasing supply volumes, even at lower costs, in order to win markets. In this case, binary options on oil at $20 are very real.
Russia is another country whose income is largely formed by energy exports, namely oil and gas. Because of sanctions and restrictions to the external capital markets, oil exports remain the main source of foreign currency inflows into the country. Thus, it’s not profitable to reduce the production of oil for Russia unless such a decision is taken collectively at a meeting of the OPEC countries. If Russia decreases production, its place may be taken by Iran in the market.
Another factor in favor of cheap oil is Saudi Arabia. This country is one of the main initiators of cheap oil today. Saudi Arabia is in an active trade war with US companies involved in shale oil. Because of the nature of technology, shale oil becomes profitable only when the price of the oil is more than $60 per barrel. However, Saudi Arabia can afford to extract oil even at $20 per barrel a will continue the war by any means. Proof of this is the reduction of Saudi Arabia’s selling prices for Asia, despite a growing budget deficit and the decline in its credit rating by Fitch.
All these factors are convincing oil traders to acquire PUT binary options on oil.
Why oil will cost $120 per barrel
OPEC does not only include a strong Saudi Arabia or Kuwait. OPEC also includes Venezuela and Ecuador, countries with weak economies, whose budgets are 80% generated by oil exports. Also, these countries are characterized by turbulent political situations, and if any conflict occurs in one of these countries, such as a change in the government or other political event, it will immediately increase the price of oil to around $100.
China is the world's leading consumer of oil, but India is the second. If the Chinese economy shows a decline, India will win its markets. Now, India may become the most dynamically developing country in 2016 and, therefore, increase its oil consumption. At the moment, the growth forecast is 7%.
The world economy is in recession, and global investors prefer to keep their savings in foreign currency or other assets. However, as soon as the global economy is out of the recession, the oil will immediately respond to an increase in demand.
The majority of contracts for the supply of oil is in US dollars. On the charts, the price of oil is reflected in the form of BRN/USD, with a decrease in oil prices as the US dollar strengthens. Expressing the value of the US dollar in the euro shows that, in September 2014, one euro cost 1.25, and in September 2015, it cost 1.11. Accordingly, with the weakening of the dollar, oil prices will go up.
These factors indicate buying CALL options for the oil.
All the factors indicating the further decrease in oil prices are current factors. That is, they have an effect on the oil now or will have affect in the near future. All the factors that indicate the possible increase in oil prices are future factors: The time of their occurrence is uncertain. So, in the near future, we will see the further decline in oil prices up to $20. Thus, we continue to acquire PUT binary options on oil.