Investors take advantage of rising oil prices
Although not the best performing commodity so far this year, crude oil is up over eight percent as of mid-March, according to Trust Securities DMCC, a clearing broker member of Dubai Gold & Commodities Exchange (DGCX).
Bruce Powers, Head of Research at Trust Securities DMCC, said, "Oil is trading with a risk premium due to geopolitical uncertainty that has the potential to disrupt the flow of oil. But, it's not just geopolitical uncertainty that is driving the price of oil. The rise in oil prices since October 2011 has a positive correlation with a rise in global equity markets, indicating that other factors are contributing, such as better than expected economic numbers and liquidity provided by central banks."
Media attention has focused on the possibility of an oil supply shock which could negatively impact economic growth forecasts as prices skyrocket. The export route through the Strait of Hormuz accounts for about 20 percent of the world's oil supply.
Asim Khan, Chief Executive Officer at Trust Securities DMCC, said, "We continue to see growing interest in trading crude oil futures especially since the trend turned positive in October 2011. This is reflected in the 31 percent growth in WTI Crude futures volumes for February when compared to January, traded on the Dubai Gold and Commodities Exchange (DGCX). Trends have a tendency to continue for a while and investors are jumping on board to take advantage of the bullish outlook."
Oil has climbed over 220 percent since bottoming in early 2009 just shy of $33 a barrel. The most recent rally began in October 2011 with oil prices appreciating over 40 percent since. Oil is now less than eight percent away from its 2011 high of $114.80 reached subsequent to the revolt in Libya.
The price of oil impacts many areas of the economy and puts upward pressure on inflationwhich could then cause business growth to slow. A move above $115 could result in weakening of economies as gasoline and diesel prices accelerate higher. At the same time the financial system is flooded with liquidity as central banks keep interest rates low and provide cheap money to financial institutions, as is the case in Europe. This also has the potential to fuel inflation. Bruce Powers said, "Recent price action in the oil market points to higher prices over the coming months. The upward trend in prices continues to progress in an orderly bullish fashion."
Trust Securities has been leader in the commodity market in the UAE for close to 10 years. The firm has unique commodity market coverage by providing access to both physical and derivative commodity trading. The firm has been a key catalyst to the development of the market in bringing many innovations over time.
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