Expected Fall in Crude Oil Price

Posted by Rob

December 7, 2007

Next week look for a fall in the price of crude oil. Many analysts are predicting a fall based on the economic woes in the US.

The slow-down in the US economy means analysts expect a reduction in US energy demands, thus lowering the price of crude oil. “Crude oil for January delivery fell $1.38, or 1.5 percent, to $88.85 a barrel at 9:13 a.m. on the New York Mercantile Exchange.” - Bloomberg

Trading Opportunity

For currency traders, next week keep a close eye on the CAD-JPY pairing which closely correlates with the price of crude oil (≈ 80% correlation). This is due to Japan’s high energy requirements and necessity to import approx. 99% of crude oil supplies. Statistics earlier this year show that Canada’s oil reserves are estimated the second largest after Saudi Arabia.

If, as predicted, we see a fall in the price of crude oil next week, this would mark an opportunity to go short on the CAD-JPY pairing. However, without further investigation it is not clear how long this trend will continue for. Therefore enter trades with caution, especially with the past two weeks of US Dollar gains against several currencies.

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