Oil Climbs, Will Gains Continue?

After more than a year of declines, oil shot up in price on Friday; leading many to ask the question… Are gains here to stay? In my opinion, the answer is no. Today, we’ll talk about why oil fell in the first place, why gains started on Friday, what we can expect to see from the commodity moving forward, and how binary options traders can take advantage of the trends.

Why Oil Is In Crisis Mode

The oil crisis started in late 2014. However, the events leading up to the crisis started well before then. As the world found new ways to produce oil, production of the commodity started to climb. Unfortunately, around the same time, economic conditions around the world started to slide, leading to declines in global demand for oil. As a result, a supply glut ensued, causing the value of the commodity to fall dramatically. Generally, when the value of oil starts to decline, the world’s largest producer of oil, Saudi Arabia, slows production in an attempt to support further price growth. However, this time, Saudi Arabia decided that it wasn’t willing to give up market share, and the declines continued.

Why Oil Started To Climb On Friday

Friday was an incredibly strong day for the commodity. In fact, on Friday, oil spiked by nearly 10%. So, what was it that caused the gains? The answer is simple. Experts are expecting to see further economic stimulus out of Europe and Japan. If these governments do make the decision to stimulate their economy, economic conditions in two of the world’s largest economies will improve. Because consumers tend to reduce reliance on oil during times of poor economic conditions, when economic conditions improve, we can expect increased reliance on the commodity in these areas. So, the gains are the result of hopes with regard to economic stimulus.

Are Gains Likely To Continue?

In my opinion, chances are that the growth in the value of oil will not continue for very long. There are a couple of reasons for this. First and foremost, the supply glut in the commodity is a major issue. In fact, if the world stopped producing oil today, we would have enough of the commodity in reserves to meet demand for at least a couple of years. Also, while we may see a slight shift in demand following economic stimulus in Japan and Europe, the world’s production levels still far outpace the demand for the commodity. Even with a slight increase in demand, supply of oil would have to fall dramatically to see any long term gains out of the commodity.