By Russell Glaser – Spot crude oil traders have been through a tumultuous year as they attempted to predict where prices were headed. Those that went long throughout the year may have seen their trading profits nearly double. Those that went short were not so fortunate. The next year will of course have its highs and lows, but the positive factors should out way the negatives, resulting in higher spot crude oil prices.
This past year the price of spot crude oil has risen an astonishing 70% after finishing the previous year down 52%. This loss was one of the sharpest one year declines in the history of the commodity. This is one of the remarkable aspects of the commodity. Very few financial instruments will allow for such price moves, something traders can appreciate.
The forecast could be rosy for next year’s spot crude oil prices. The global economy is on the rebound as most developed nations have exited the recession and their economies continue to expand. This should help boost the price of spot crude oil as future demand could remain strong. Future demand in China is expected to rise, as well as the demand in the world’s largest energy consuming economy, the United States. As no alternative energy source is on the horizon for quite some time, demand should continue to stay strong.
While OPEC continues to encourage its member states to limit their output, they have little ability to enforce these supply quotas. OPEC members that are dependent on a steady stream of oil dollars to ensure their despotic regimes remain in power have very little incentive to comply with OPEC quotas. This should keep the steady supply of oil flowing from these OPEC nations.
The Iranian issue still looms on the horizon and has the ability to ignite a sharp rise in the price of spot crude oil. Should sanctions fail to persuade the Iranian regime to abandon its nuclear program and military action be taken, we could see a spike in energy prices.
The threats to spot crude oil prices may also be a proponent. The global economy continues to expand as most central banks’ interest rates remain at all time lows. However, as inflationary pressures mount, central bankers will be forced tighten monetary policy. By turning off the spigot of cheap funding, perhaps siphoning off potential growth in the economy, the dollar may begin to appreciate. A rising dollar could take the bite out of a crude oil rally in 2010.
Despite the potential threats of higher interest rates and a stronger dollar, demand for crude should continue rise. Therefore, we could see spot crude oil trading near the $95 level this coming year.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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