Once more, oil prices are down and are projected to stay down in the near future. Analysts point at the ‘oil product glut’ as the reason for the weakness in the markets. With an oversupply of oil products such as gasoline, and an increase in US oil rig count, the Saudis are giving an additional discount to their Asian customers in order to protect their share of the market. These factors promise to keep oil prices subdued for a longer period of time, and this year might wind down with lower oil prices than previously expected.
These fluctuations in oil markets might be indicative of the new dynamic created by the fracking revolution. Traders must start thinking about short price runs in oil markets that end give them very short windows of opportunity to play with the upside. Looking beyond these short term investments, lower oil prices will continue to have a negative effect on inflation. This could mean that investors will have to change their outlook on other unrelated investments.
With lower oil prices helping keep inflation low, central banks will keep on pushing their monetary easing policies for longer. This creates some opportunity in certain areas, but it also raises the stakes for investors. Consumers have been saving the windfall from lower gas prices, but if they see that the price at the pump will stay lower for longer, they might feel enticed to spend more. This could boost inflation, unless consumers decide that deflationary pressures are going to subdue consumer product prices for longer, in which case they will postpone their consumption. This could keep inflation dangerously low.
The alternative energy industries might also start feeling the pressure from lower gas prices. Although alternative energy has kept on growing despite fierce competition from low oil prices, the markets will eventually catch up. This is one of the industries that has the most to lose from low oil prices, so investors must be cautious when approaching alternative energy opportunities.
The expectation of lower oil prices for longer is certainly making it trickier for investors to follow their strategies. Now more than ever it is time to take a look at the numbers and readjust.