As the most circulated commodity in international trade, fluctuations in the oil price have had a significant impact on the global economy. But with several demand and supply dynamics coming into play, it seems that volatility on the black gold is here to stay.

Oil Production in the US

US shale oil production has dominated the supply debate since 2015. Once the world's largest importer of oil, the United States is now set to be not only self-sufficient, but also a net exporter by 2022, sooner than anticipated. With current oil prices sustaining above $60, the International Energy Agency (IEA) forecasts that the US will see more investment in its shale industry and consequently, will boost production by 1.4 million barrels per day. The forecast is even more bullish at an additional 3 million bpd if prices manage to surge past $80. This will eat much into a market that was being served by OPEC and will of course negatively impact oil exchange-traded funds (ETFs).

OPEC has responded to US shale oil production by limiting its supply to the market. It notably agreed to production cuts among its members as well as non-OPEC Russia. The deal that was cut last year has seen commendable adherence, which has led to a steady rise of prices. It remains to be seen whether some OPEC members will be buoyed by current higher prices and begin discussions on how to exit the deal that keeps 1.8 million bpd off the market; or they will want to continue limiting production with an eye on even higher prices in the future.

Demand for Oil

But while supply seems to be increasing, so is demand. Global demand has steadily been increasing since 2016, with China leading the way. The communist country is now consuming about 12% of global oil production. Demand only slowed down last year as China implemented widespread economic reforms which impacted its exchange rates and slowed growth. Overall, global demand is forecasted to continue growing in the medium term, but there is still a real threat going forward as the world continues to embrace green energy.

Oil Trading

Foreign exchange traders have also had an impact on the oil price. Oil transactions are done using US dollars, and as such, when the value of the greenback increases, oil prices fall and vice versa. The US is experiencing great fundamentals currently, but there are numerous factors piling pressure on its currency. With a controversial President at the helm of the country, the dollar faces massive political risks compared to its major competitor, the euro. The Eurozone is also benefitting from a resurgent economy as well as a trade surplus, unlike in the US where an overvalued stock market, as well as an unattractive bond market, are not attracting previous high demand. The US dollar is therefore forecasted to be under pressure this year, which should be good for oil prices.

Oil Trading 

The fluctuations of oil prices have also had an impact on oil stocks. When oil prices rise, oil marketers usually have their stocks pressured, as higher prices do not necessarily translate to higher retail prices. This impacts their marketing margins and investors punish their stocks for lack of pricing power. On the other hand, shares of companies involved in oil and gas exploration usually enjoy higher prices as their gross refining margins improve. ExxonMobil (NYSE: XOM), both an oil refiner and marketer, is a great example of the impact of oil volatility in stocks. The company's share prices have oscillated between a low of $72.13 posted in August 2015 and a high of $95.12 posted in July 2016. It is currently trading circa $74, having been pressured the whole of 2018.

This volatility makes online oil trading a lucrative option for investors. Oil is available as a CFD underlying instrument on most Forex trading platforms. On such platforms, traders can enjoy high leverage, which can immensely boost their overall profitability as well as the opportunity to place multidirectional trades on the commodity. This will prove particularly profitable on oil whose prices fluctuate wildly daily, which means numerous money-spinning trading opportunities. Online oil trading is also an attractive investment opportunity as there are plenty of risk management tools available such as hard, partial and trailing stops. A variety of trade options are also available, such as spot and preset limit entries.