Ingredients of Commodity Investing
After a group of rowdy militants struck the global economy with drones and missiles last Friday, investors went wacko trading Brent Crude Oil. Paralyzing attacks were made against Saudi Aramco’s oil facilities, but how do you play that in the markets?
It’s sticky, it pollutes, and it’s the lifeblood of the industrial world. If oil-rich regions pump too much of the stuff, investors should expect Brent Crude to go down. If they pump too little oil into our global system, it becomes more scarce, and it goes up. So, a double-digit surge last week made plenty of sense considering the politically-charged drone attacks that took half the Saudi kingdom’s oil production offline… or did it? Actually, some are betting that the price of oil will go down as investors remember why it is we’re sitting on 1.7 trillion barrels of emergency oil reserves!
There are also a few other laws at play which could affect the way commodities like oil go, on top of supply, demand, and reserves. In a perfect world, inflation chugs along at 3% a year, and that means most commodities will chuck along at 3% a year. Obviously, the world isn’t perfect. If investors get excited about one country, their investments in it will heighten the value of its currency against other currencies. Commodities originating there will go up in the markets, all other factors being equal. Clearly, market players have a lot to think about regardless of whether they’re trading copper, palladium, oil, or coffee!
As for the oil-producer Saudi Aramco that was targeted last Friday, it will have to foot the bill for the attacks. Currently owned by the Saudi government, that shouldn’t be a problem! However, the oil blast has left a gaping hole in the side of Aramco’s stock market plans. With it being the largest company in the world, these attacks paint it as a political pawn. Investors won’t like that and will need reassuring if they’re to dip into the initial public offering (IPO) coming soon.