Trading Oil Futures Commodities

With all the stuff happening in Iran and North Korea, the commodities traders and futures market is really putting the $75 resistance to the test. There is a lot of uncertainty regarding geopolitical issues, and uncertainty drives up premiums on oil futures.

An analyst on oil trading said that oil will hit $100 a barrel. Here is something to consider. Remember the oil shock back then. If you take the crude prices back then, and correct for inflation, you will see that oil prices were about $83. This price will definitely become a pivot point for crude prices if there is a breakout above $75.

Another pricing factor for trading oil futures to consider is this. How high do oil prices have to soar before alternative energy becomes an economical choice? Right now, oil is king because it is practical and cheap. However, if oil prices go high enough, it will make more sense to go with alternative energy. No one knows what the magic price is, but once it hits that price, alternative energy will become a fierce player in the energy markets. Back in the 70s and 80s alternative energy started to catch on for awhile. However, OPEC took the offensive by dropping crude prices to record lows, effectively killing the alternative energy movement. This time, however, because of supply issues and lack of new discoveries, OPEC is not going to be able to control the oil futures market.

Here is a quick lesson on oil refining. There are 3 layers of oil: light, intermediate, and heavy. Light is less dense and is always on top. Light is the cheapest to extract. Heavy is the most expensive. At most wells, they extract only the light and intermediate. The heavy layer is usually too uneconomical to extract. This also factors into pricing.

I really hope that crude oil does not breakout above $75. I just paid $45 to fill up my car.