Falling demand for crude has lowered prices for oil and products such as gasoline, diesel, and kerosene. Over recent months, oil company stocks have fallen broadly and significantly. There are steps an investor can take to find short and long-term values in this economic environment. Below are five approaches on oil trading that can help any investor.
Maintain a Balanced Portfolio
Balanced portfolios help reduce risks and limit financial exposures. In a period of declining oil prices, balance can help keep investment objectives on course. Falling crude prices may lower oil dividends and reduce the value of oil stocks in a portfolio. Balance can accommodate continued overall progress as falling oil prices bring benefits to other parts of the economy.
Profits among Falling Prices
Investors should research oil companies and look for details about their explorations, technologies, and markets. Falling prices can be an opportunity for companies to grow, and they can increase their market shares. An aggressive posture on price in a falling market can use cheap supplies of crude to garner new customers or expand existing contracts. Companies have varying profit points or break-even points depending on the exploration site and methods of extraction. For some, a contract in the low $80 per barrel range is still quite profitable.
Follow News and Events
OPEC announcements indicate the leading exporters will permit oil prices to remain low until demand rises. Saudi Arabia has announced it will increase production and move to maintain its market share. Other noteworthy news items include central bank actions in the United States and Europe to reverse signs of a widespread economic slowdown. In the United States, the Federal Reserve may take policy action on interest rates, and in the European Union, there are growing pressures upon the large economies to stimulate growth through government spending. Many experts in the U.S. feel that Federal policy favoring lower interest rates has been a driver of value in the market.
Look for Export Opportunities
Speculation continues that the United States may relax its ban on crude oil exports if the U.S. markets show a growing surplus. This potential change could improve the position of firms that seek to export, and international political situations may cause new markets to emerge as Western nations continue sanctions against Russia. While some western companies will lose business due to sanctions, replacing sources of supply interrupted by the economic sanctions may be a windfall for others.
Watch Economic Trends
In the United States, demand rises and falls with the price of crude expressed by gasoline at the pump. In a low crude price environment, one can anticipate higher volumes of sales over time. Lower gasoline prices will free consumers to spend on other products. In a consumer driven economic expansion, low-priced crude oil contributes to increased demand for gasoline and many other petroleum products. Increased consumer demand will gradually reduce oil market surpluses as supply and demand level out. Look for companies positioned to weather the low price storm; these stocks may be present day bargains that will rise as crude prices regain some of the lost ground.