February 14, 2017
A Dynamic Commodities Exclusive
Crude oil is the most closely watched commodity that trades on the futures exchange. Changes in the price of the energy commodity have far reaching effects on almost all other assets.
There are many risks when it comes to the price of crude oil. However, the biggest risk that always lurks in the background is the fact that the majority of reserves are in the most volatile region in the world, the Middle East.
In the 1970s, violence in the region, the oil embargo, and the Islamic revolution in Iran caused oil shortages in the United States. I remember in the late 1970s when I first got my driving license the long gas lines and the days where an odd-even system based on the last number of a license plate limited the availability of fuel. Before 2004 the price of crude oil futures contracts never traded above $42 per barrel level. However, in 2008 the price of NYMEX crude oil futures rose to an all-time high of $147.27 and from 2011 through July 2014 oil spent lots of time north of $100 per barrel.
A bear market followed in crude oil that took the price of NYMEX nearby futures to lows of $26.05 on February 11, 2016 as U.S. shale production and increased production from OPEC, the international oil cartel, flooded the market with the energy commodity. One year later, in 2017, the price was over double the February 2016 lows. The Middle East remains the biggest risk for crude oil. Violence in the region that potentially could impact production, refining, or logistical routes in the Persian Gulf and other loading and transportation ports and waterways that could cause price spikes in the energy commodity.
The world depends on the flow of oil to meet its energy needs. Technology has presented the world with alternatives to crude oil. Bio fuels like ethanol, wind, solar, nuclear, hydroelectric, natural gas and even clean coal offer other options when it comes to powering the world. However, crude oil remains the most important energy commodity in 2017 and the risk of a flare up of violence or worse in the Middle East must always be in the mind of consumers and traders who are active in the crude oil futures market. It is the risk of this region that would be most likely to cause a dramatic price increase in a very short time.
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