By STEVE AUSTIN for OIL-PRICE.NET, 2016/05/11
Crude oil was at a 13-year record $25 low in mid-January 2016 and has soared more than 70 per cent since. The battle is on again. We are talking about the mighty forces whipping up the oil prices. How does the investor work out where the oil price will go? Ultimately, you have to make your own forecasts, at least on the general, long term direction of oil prices – short term movements tend to be driven by news stores on the day. In particular, you need to take into consideration the following dimensions:
– Supply and demand: if producers are outstripping demand, prices will fall and if there is a shortage of oil, prices will rise.
– Political events: a war, rebellion or political uncertainty affecting major oil producers may prevent those countries from producing and selling, reducing the supply of oil.
– Economic growth: if demand is expected to grow faster than production, excess supply will be soaked up and shortages will arise.
– Related markets: the futures market, availability of transport, currency rates and the cost and of extraction equipment and labor can all affect the price of oil.
We took these factors into consideration when assessing six reasons for the recent rise in crude oil prices. Will this rally continue, or has the price peaked?
Weaker dollar raises oil prices
The market price of crude oil is valued in US dollars. Therefore, when the oil price falls or rises, you also need to look at the value of the dollar against a range of currencies. If an oil refinery in China needs to buy crude oil, it has to convert its income, derived in the local currency, Yuan into dollars. An oil producer, such as Saudi Arabia, needs to convert its income into the local currency, the Riyal in order to cover its costs. Large buyers go direct to suppliers in order to get a good price for their oil. China is particularly adept at this practice and has written up agreements to pay in its own currency for crude oil, rather than in dollars. So, if the value of the dollar falls by 10 per cent, the contract price of those agreement rises by 10 per cent, even though it hasn’t changed at all in the contract currency.
In fact, this phenomenon is notable in all commodities priced in dollars – steel, copper, gold, and silver have all experienced price rises in 2016. This is not because there is a shortage in those commodities; it is just because the currency in which they are priced has fallen. Continue reading →
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People have been drilling for oil and gas since the 1800s, and it’s not something that’s about to stop any time in the near future. Because of advancements in the drilling technology, such as hydraulic fracturing and horizontal drilling, more and more people are seeing the opportunity for direct oil and gas participation.
Direct oil and gas participation means that you are investing at the source rather than through a broker or the stock market. You’re dealing directly with the people who have a working interest in each well they drill. The way to reduce your risk with this type of investment is to work with people you trust, people who have been in the industry and know what it means to do due diligence before making a move.
The team at Fossil Oil Company has over 130 years of combined experience in not only drilling, but operating as well as investing in oil and gas wells. Using subsurface well control and state of the art seismic data when generating drilling projects, this group of engineers, project managers, geologists and even financial consultants, are specifically focused on investments in this industry. With their livelihoods at stake, as well as the investments of all concerned, they bring you the smartest investment strategies in the market today.
So rather than looking to brokers who have their own profits in mind to help you with oil and gas investing, it’s a good idea to look at direct oil and gas participation with Fossil Oil Company to bring you the most qualified team of oil and gas drilling and investing experts. Dealing directly with the people who have the experience in all aspects of oil and gas can mean more true profits in your pocket and more tax advantages for you too. So call (832) 919-6459 and talk with a member of our team to find out which wells are actively working and which investments fit your needs.