Various Factors Affect Supply and Demand for Oil

Demand and supply for world crude is currently being affected by OPEC’s production agenda, the treaty on nuclear relations with Iraq, rig oil counts in the United States, and current turmoil in Libya.

At the same time, oil traders have watching retail investors closely in recent weeks. Meanwhile, there are also factors shaping stabilization of crude prices. These include reversal of price reduction; investments in exchange traded products worth billions of dollars; market investors; and, hedge funds.

Concerns regarding storage capacity in the US generated a renewed decline during the past week. At the same time, investors have poured more cash into financial commodities supported by oil futures.

Yet, there are possibilities their bets can send oil prices dropping once more due to a market collection where spot prices may go lower.

Observers believe the US benchmark can slip from the current $47 to $20.

Holdings in ETF products have climbed up since the start of 2015 such as the highly-leveraged Velocity Shares and Long Crude Oil ETN.

At present, US Oil Fund holds roughly 60,000 contracts for oil futures which are over 10 percent (open interest) at the New York Mercantile Exchange.

However, investors may have to shell out additional costs as they wait for the markets to recover.

When the US Oil Fund unleashed its shares, the contract cost effectively downsized holders of investors.

Market analysts say these investors may withdraw as a group if they lack the resources to sustain their positions through price changes.

Although funds like the USO may be expensive for retail investors, hedge funds may utilize exchange traded commodities as a means of managing momentary exposure to the crude oil market.