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Page 1 of 2 News / Commodities
If you really think about it, market movement is based on two basic things: the main driver or indicator and the expectations whether that particular driver will change or not.
Any analyst must take note of the key drivers of prices of a particular market will give a trader insight into why a certain market behaves a certain way.
Experience has taught us that each particular market has its own particular driver which trader watch and take note of on a regular basis. These drivers may include a set of economic data (GDP or unemployment rates, for example) or it can be seasonal numbers. It is these speculative drivers and the change in expectation they bring normally comes in first, hence the term “discounting effect” on the market. Ultimately, these will influence and affect the market price.
While it is speculative drivers that are actually triggering the recent decline in crude oil from the highs of US$147/bbl to its current level of US$115-120/bbl, for now let us focus on the “main driver” of the crude oil market. We believe that ultimately prices will eventually revert to its true and fundamental value.
In the case of equities or stocks, we all know that the main driver of a stock price is really its earnings. Hence, you have certain metrics such as Price to Earnings Ratio which is essentially a multiple of the current market price over the stock’s earnings either forward or backward looking.
In the case of commodities like crude oil, for example, the main driver is, as we have learned in our college economics, supply and demand. If demand is expected to decline, then prices go down and vice versa.
For the past several months since crude oil prices went up, there has been a lot of talk regarding the lack of global supply of oil given the rise in the economy of China, Russia and India resulting in a rise in demand.
It is with this reason that I started to look at the supply and demand situation on an aggregate basis and to really understand and get to the bottom of the main driver of oil.
Lo and behold, I found out that the G3 countries (i.e. US , Japan and Europe) account for almost half of the daily crude consumption (49.38%) based on the latest data coming from British Petroleum. On the other hand, the fast growing nations in the
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