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Dec. 29, 2015 By: Bryan Doherty, Agriculture.com Energy markets have been in a major price decline for some time. After nearby futures peaked in August 2013 at $112.24, crude oil futures have since been on the decline with a low established this month of $33.98. However, one might argue that the market has been in a downtrend since 2008 when, in July, prices peaked at $147.27/bbl. In just over the last two months, prices have declined more than 25%. When focusing on percentage changes, the last two months have been nearly as bearish as any other time in recent history. How much further can prices go down? It may be anyone's guess. The world is in flux, and it appears that OPEC, as well as other oil-producing nations, are unwilling to slow production in an attempt to see who can blink first. Will it be OPEC or other producing countries? Is the market likely to move to the 2008 low or lower? There are no shortages of analysts who suggest that we could potentially move into the $20 to $30 range, an area where crude oil prices traded during 2000 to 2005. It's a different era now, and to suggest a return to these levels, while possible, is not likely. Even if prices move lower, the odds are not likely they will remain low. The determining factor will be the cost of production. Estimates range from the $35 to $65/bbl range. In addition, oil-producing countries such as Saudi Arabia, Russia, and Venezuela depend on revenue from oil production to fund their government. Therefore, the long-term prospect of continuing to produce oil at a loss doesn't add up. Consequently, it may be just a matter of time before production reductions are at hand. Remember, markets usually appear most bearish near a bottom. From an end user perspective, realize that prices are as low as they've been for nearly 13 years. Often markets, whether bullish or bearish, have a tendency to extend further than most are expecting. The extension, however, is generally short-lived. Use strategies to lock in long-term needs for the next one to three years. If you have questions or comments, or would like a balanced strategy for your operation contact Top Farmer Intelligence at 1-800-TOP-FARM ext 129. Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results. Tweet |
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