The global economy runs on the supply of oil. You must have heard about the Peak Oil Theory. What this theory stipulated is that almost all the known reservoirs of oil have been discovered. No more new oil wells have been left to be discovered and exploited. What this means is the supply of oil in the world is finite and limited whereas it’s demand is growing with each year. With the development of nations like China and India, this demand is expected to grow more and more.
Now, the economics of oil prices is simple. With more demand and a finite dwindling supply that is being exhausted with the passage of time, the world is going to see the end of oil in the coming two to three decades. Rising demand and decreasing supply will push oil prices in the range of $200 in the coming years.
We just saw a glimpse of the future when in the hot summer of 2008, crude oil prices jumped from $70 per barrel to above $140 in just two to three months. This uptrend was truncated due to the stock market crash of 2008 and the onset of global recession. Due to recession, demand for oil got reduced but only for the time being. When the global economy is going to recover again and start expanding, demand for oil will return. Can you imagine driving your car with these prices of oil? I don’t think anyone will take the liberty to do that. Until and unless someone finds a cheap solution to oil, global economy will stay hostage to the dwindling supply of oil. Alternative energy? It is in infancy. Right now, there looks to be no cheap solution to oil. With the end of recession, crude oil prices will again reach in the range of $150-$200 per barrel.
As a trader, you must be cognizant of this fact. We traders always try to profit from a trend that might last for many months. Once an uptrend starts in the crude oil prices, it may last for several months to years. Those savvy traders who can position themselves for trading crude oil in 2010 are going to reap huge profits.
You can trade crude oil by investing in oil companies. They are already over invested. You can trade oil stocks, oil ETFs, oil mutual funds but the best method to trade crude oil is to trade crude oil futures. Crude Oil Futures contracts get traded on the New York Mercantile Exchange (NYMEX). If you don’t futures trading, you can learn it in the next two months by paper trading futures contract. Position yourself for the great oil shock that is coming in the next few years perhaps it may start in 2010!