Oil Supply and Demand
| Demand for oil futures can be extremely difficult to predict and
analysts almost universally predict demand for oil to go up.
Oil Supply and Demand
Oil has many applications, and as demand increases, prices generally go up. As the price of oil increases, it places more of a burden on consumers. | |
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Eventually, the price of oil and the general state of the economy is enough to make many consumers reduce oil consumption, resulting in a drop in demand. Less demand means the price of oil drops, and people who invest in oil futures at a certain price could end up paying too much.
Global oil consumption points to increased demand, so oil futures seem secure. The premise behind oil futures trading is that the price of oil rises as demand increases, so predictions of high demand makes many investors feel secure in oil futures trading.
Unfortunately, though, high demand doesn’t indicate that demand is going to stay high, and even if prices increase, investors can’t really know how quickly prices are going to rise.
If you buy oil futures for $200 a barrel in a year, and prices only reach $180 by the time the instrument reaches maturity, you’ll be losing money.
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