Stephen Schork is a famous trader in the oil industry. He has been speculating for the last several weeks that the oil prices would fall but instead they kept on rising. In the process he lost a lot of money due to the belief that the price of the valued commodity would fall. This rose out several questions which will be discussed in this document. They are:
- What made him decide that the oil prices would fall?
- What factors made the price of oil to rise from February this year and the recent fall?
- What are the possible causes for the increase in the price of oil again?
Stephen Schork Speculation of a Drop in Oil Prices
Stephen Schork has lost a lot of money while he was speculating that the prices of oil would drop. From his point of view the major factors that affect the price of a commodity are demand and supply. These are the basic fundamentals that determine the price of a commodity in the market. However, the recent rise in oil prices has been caused by the wars and instabilities that have been going on for some time now in the Middle East and other oil producing countries. According to him, there is a lot of oil in the market which can satisfy the demand of all users in the world. Therefore, the current rise in the price of oil is due to an artificial shortage. Stephen believed that this condition would not last for long. During the period of speculation, he lost a lot of money. The individuals who bet on the fact that the oil prices would rise at that time made a lot of money. However, things came around and on the first week of May, the prices of oil dropped drastically (Hargreaves p.1). After losing money for a couple of weeks Stephen is now enjoying unlimited profits. By the end of the fist week the oil prices per barrel had settled at $97.18 a 12% decrease as compared to the prices of the previous week (Hargreaves p.1).
Causes of High Oil Prices between February and April
The oil prices have been rising since February this year. This has been as a result of several factors that have been affecting the oil market. In February this year the price of oil per barrel was $89, $103 in March and $110 in April (EAI p. 1). The main factor which has led to the increase in the prices of oil is the ever increasing demand for the commodity. It was projected that the market demand an average of 1.4 million barrels of oil per day but the supply by the Oil Producing and Exporting Countries (OPEC) was only 0.6 million barrels per day (EAI p. 2). This supply is not even half of what the market demands triggering off the high prices of oil. Political uncertainties in the Middle East and other oil producing countries have also contributed greatly to the increase in the world oil prices. Libya for example is among the leading oil producing countries in the world. However, with the recent political instability and war that has rocked the nation since the beginning of this year, the supply of oil has been altered. In May the prices of oil went down. This was due to the increase in its supply of the commodity. There has also been a relative stability and peace in the OPEC countries. This has ensured that there is a consistent supply of the commodity.
Factors Which May Cause Oil Prices to Increase Again
However, the prices of oil are expected to go up in the next few months. This will be due to several reasons. First of all, it has been projected that the demand of oil will rise. The current consumption of the product is expected to rise to 1.6 million barrels per from 1.4 million barrels per day (Proactive Investors p.2). This will lead to the increase in oil prices and associated products. Another factor which will cause an increase in the oil prices is inflation. Currently the rate of inflation is very high. This has affected the economy of lot of countries. Currencies are becoming weak and the cost of living is increasing. The value of the dollar is also going down. The dollar is the currency which is used in international trade including the oil market. Therefore when its value drops the prices of commodities will certainly rise. This is the same scenario that is being experienced in the oil market. Oil prices are going up as a result of the weak value of the dollar. Political unrest may also cause the oil prices to go up. Some of the oil producing countries in the Middle East and Africa are not politically stable Libya being one of them. This may cause a decline in the supply of oil. As a result therefore the prices of oil will definitely increase.
Works Cited
EAI. Short-Term Energy Outlook. EAI. 2011. Web.
Hargreaves, Steve. Bet on falling oil prices pays off. Collegestockpro. 2011. Web.
Proactive Investors. Commodities lead U.S. stocks lower. Proactiveinvestors.com. 2011. Web.