In finance and trade, the commodities market is the most important. This is simply because commodities are what fuel the services sector. For instance, the oil and gas sector is one of the most important in the world because it is one that fuels the economies. As a result, oil and gas companies save their money in banks thus improving the financial sector. The same happens with other commodities such as gold, beef, corn, and copper. Therefore, when there is a weak oil prices in Saudi Arabia or Nigeria, the financial market will be impacted.
As mentioned before, crude oil is a very important commodity today. This is simply because oil fuels the engines that in turn improve how businesses are done. In the past 5 years to 2014, the crude oil prices were on a bull run reaching to a peak of $113 a barrel. Then, things started to change mid 2014 leading to a fall in the crude oil prices to a low of $37 a barrel in August. This fall has led to significant impacts in the global economy. Net exporters of the commodity such as Nigeria and Saudi Arabia have lowered their economic projections showing how oil plays an important role. On the other hand, countries that import oil have increased their projections but on a slower margin because of the strong dollar. In a recent report by the American Energy Information Administration (EIA), the oil prices will average $49 a barrel in 2015, and $54 in 2016. This can be seen in the chart below.
The impacts of these figures are very significant in the financial market. Companies that deal with oil and gas have had their shares fall by very wide margins. As seen in the chart below, Royal Dutch Shell class A shares have fallen from $72 to a low of $48 in 2015.
At the same time, Exxon Mobil has also had a bad calendar year as seen in the chart below.
In a recent report by the World Bank Group, the oil prices are likely to rise up to $57 this year. However, this is not possible going by the recent trends with oil prices trending lower. Also, this will be impacted by the Iran deal that was signed in August this year and whose impacts are anticipated in the first quarter of 2016. For day traders, all these are opportunities to go long or go short the oil prices. The number of news on crude is on the increase which will lead to more opportunities. In addition to this, the United States government is expected to increase interest rates in December. If this plug is pulled, the implications will be that oil prices will go higher as companies align themselves to the new rates.
As seen in the chart below, this year has been bad for copper. The prices have fallen from $3.35 to a low of $2.267. This is a 5 year low for the commodity which is used worldwide by utility companies. Also, these levels were last seen during the 2008 global recession.
As a result, this has provided an excellent opportunity for short sellers in copper and also in copper mining companies. As seen in the chart below, Glencore, one of the largest copper miners has had a very bad year for the investors.
The same trend has been repeated by Freeport-McMoRan whose share price has trended lower.
To better understand the movements in the gold price, it is important to relate it to the United States dollar price. The USD has this year had its best year in more than 10 years with the dollar index reaching a high of $104. Therefore, when the dollar rises, the implications in the gold prices is that they fall. As seen in the chart below, this is evident.
This has had a number of impacts on gold mining companies. As seen in the chart below, AngloGold Ashanti the leading gold producer has had its share price decline by a significant impact.
In all these situations, opportunities for day traders have been enormous. Opportunities for long term investors especially in the commodities market has been limited. In fact, many long term commodity investors have seen their profits eroded this year. The low prices also are buying opportunities for these commodity assets with normalizing expected when the fed increases the interest rates.