Something major is happening in Saudi Arabia right now, and paying attention to how this will affect oil is an important part of your overall trading strategy. You may have noticed that the Saudis have finally announced that they will be cutting back on oil production, something that has helped the price per barrel of crude oil jump dramatically over the last week. However, internally, things are in turmoil for the world’s leading oil exporter.
The overnight deposit rate in Saudi Arabia skyrocketed recently, going up to the highest levels it has seen since the financial crisis of 2008 and 2009. Many analysts believe that this is a clear sign that the prolonged price of oil has finally hurt the nation’s economy. If you will recall, the Saudis said over a year ago that they could continue their rapid pace of production without any ill effects to their economy for at least a year. If the overnight deposit boost is any indicator of this, the country kept production levels high for a little too long. The problems that oil derivatives have been facing for the last several years appears to have now manifested itself as a problem with funding.
The other alternative to this outlook is that wealthy Saudis are finally gaining confidence that the price of oil is stable, and they are putting their money into banks as a way to protect those earnings. If this were the correct answer, it would be propelled forward because banks are becoming hyperaware of the credit risk that they are now under. Neither of the proposed reasons are very attractive to the Saudi people.
What does this mean for you as a trader? For one, it means that we are likely to see the price of oil go up dramatically yet again at some point in the next few weeks. Right now is a good time to start finding good prices on long term binary options for crude oil. We’ve been saying for several months that oil will go up at some point in the future, but there hasn’t been enough evidence to suggest that the commodity would start its climb at any point in the near future. If Saudi banks are putting their clients under pressure to start paying off loans, there’s a good chance that we will see the price of oil rise as exports are slowed in order to boost crude’s price per barrel. This would be the smartest way for producers and exporters to make the most money possible, although it may prolong things for a bit as the volume being sold will be lower per day. If done right, though, big oil companies should easily be able to increase their profit rates here. It looks like that whatever does happen with the Saudi financial crunch, other nations are helping to contribute to rising prices. Global economic growth is the biggest factor here, and there’s no reason to believe that oil is not headed upward now, despite the many unknowns that exist still.
Do consider the volatile nature of oil recently, and remember that the U.S. dollar and the euro—the world’s two most heavily traded currencies—have been volatile, too. There’s plenty of factors that could still hurt oil’s price, but there are more things pushing it up right now than pulling it down. It may be a prudent strategy to sit and wait until more signs point to a resurgence in oil prices, but this is really dependent upon your risk tolerance as a trader, and the timeframes that you are looking at for your expiries.