March 20, 2018

Macro Environment Supports Higher Oil Prices

Macro Environment Supports Higher Oil Prices

Over the last few years, markets have had to come to terms with the differences that are created by lower prices in energy markets.  This has taken many investors by surprise and fundamentally changed the ways that many assets view the nature of the global economy.  But what many have missed in all of the carnage is that there are several macro factors that could cause the tide to turn in very short order.  If this does turn out to be the case, we will likely see revisions to the analyst estimates that are currently characterizing many different aspects of the economy.  

World Economy

First to watch is the constant geopolitical turmoil that seems to be facing markets.  These types of events can create difficulties in terms of the ways oil supplies are transported and so any disruptions here create bullish scenarios for energy companies that are able to deliver their materials.  We are still looking at several areas of the world that are experiencing rising tensions and so this is not a factor that can be easily disregarded in the current valuation context.   

Perhaps slightly longer term is the changing stance that has been seen at the Federal Reserve, which recently suggested that there will be another interest rate increase before the end of this year.  We are still looking at a scenario where many analyst expectations have failed to accurate forecast the economic outlook for the year, and this creates many favorable for those trading CFDs in assets that are tied to the industry.  This will continue to be the case for at least the next several quarters, as there is still a good deal of room to run before markets normalize.

Higher Oil Prices

There are still major questions going forward with respect to the ways markets can react to higher oil prices and higher interest rates.  But when we see valuations in the US Dollar decline, moves higher in oil prices will usually follow quickly after this occurs.  For these reasons, investors will need to remain aware of developments in these areas in order to determine which positions are best for the coming rallies in areas like crude oil.  Some of the best positioning strategies here can be seen with CFDs as they will allow investors to plot a differential between the current valuations and what is most likely to follow from here.

The next few months should become increasingly interesting for the financial markets, as trading values will be continually impacted by the geopolitical turmoil we are seeing and the changing nature of the Federal Reserve in its policy stances.


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