There are no news that commodity prices are volatile and unpredictable. Countries dependent on the extraction of natural resources have…
There are no news that commodity prices are volatile and unpredictable. Countries dependent on the extraction of natural resources have their faith linked to the price of a particular commodity or group of goods. The end result of a shock in the price of a product is usually disputes over the producing nation and its citizens. The opposite is true when commodity prices are trading at high levels for a long time. The price of oil was a fall in the first decade of the 21st century when resource-rich countries benefited from high commodity prices. During this period, fuel oil reached a high of almost $ 144 in 2008.
Over the past 10 years, oil prices were not as good. Brent crude oil has been on a rollercoaster since the latest financial crisis, during which oil prices stumbled, as oil drivers are expected to decline after recessionary fear. Since then, the ground and back in June 201
4 burned crude traded at $ 115 a barrel, but hit a multiannual low in early 2016 as it hovered around the $ 30 level. The sharp sales came at the back of global growth problems and at a time when global demand would be negative.
In the last 18 months, however, oil prices had a positive run.
As is usually the political problem that contributed to the rise in prices, as trade tensions together with political and economic sanctions against Iran of the United States aroused over the markets from the beginning of the year. During the first nine months of the year, the price of fuel oil spiked 28 percent.
Sanctions against Iran have a direct impact on the crude oil market because US sanctions prohibit countries from buying crude oil from Iran. The consequence is a lower demand for Iranian oil and thus lower daily oil supply. Due to these penalties, various countries have already reduced or stopped buying Iranian oil altogether. In fact, some of the rise in oil prices can be attributed to concern that producers will not be able to fill in the output gap caused by the decline in Iranian oil exports when the sanctions entered.
But what we witnessed in the last six weeks is a partial reversal of the increase in prices noted until early October. This despite the fact that sanctions against Iran came in to be placed earlier this week.
Different market participants believe that lower supply from Iran will be more than what is being done by other oil producers. In addition, expectations of slower economic growth, all as much, also mean lower demand for oil. In addition, Washington has agreed to relax sanctions and allow eight countries to continue buying Iranian oil. China, the largest buyer, is among the eight countries.
Falling oil prices are a blessing for consumers and curse for producers. The latter includes major oil exporters like Nigeria, Venezuela and Russia.
The negative political and economic impact of very low oil prices on Venezuela in recent years is widely known.
Due to the nation’s dependence on the oil industry the state public spending dropped massively, which in turn created shortage and impressive increase in prices for goods and services.
The country was in a bourgeois way. Countries strongly dependent on the price of a volatile commodity product, such as oil prices, should find ways to diversify their revenue streams to mitigate the negative effects of lower commodity prices as much as possible. Washington has agreed to relax sanctions and allow eight countries to continue to buy Iranian oil. China is among the eight countries
Investors should always remember that trade investment is a risky strategy that usually does not yield revenue. An investor who wants portfolio exposure for a particular commodity can invest in shares in companies operating in the specific sector.
However, holding direct shares in a listed company will add more stocks of risks, such as standard and coordination risks. Risks can be mitigated, but not fully reduced if exposure to commodities is reached through an investment fund or stock exchange. Such investments reduce the default and concentration risk while portfolios are exposed to a particular product or a number of goods.
Investors who choose a commodity fund with exposure to the oil industry own own shares in companies involved in oil exploration, refining, storage and distribution of equipment.
While the fund will fluctuate more or less in line with the value of the product, the standard and concentration risks are lower and the level or profits or losses will not necessarily reflect the movement in oil prices.
If you are still worried about a commodity fund in its portfolio, due to the volatility expected to be, you should at least consider a multi-asset fund as among the mix of different asset classes there are shares in companies whose profits are linked to commodities and energy. Such assets tend to provide protection against higher inflation. In fact, with higher inflation saving more clearly than ever, investments in commodities can also mean a potential hedge against inflation.
Higher inflation is generally not positive for bonds and stocks, but can often imply higher commodity prices. Historically, commodity prices have not proved so strongly linked to high-quality bonds and stocks and can thus provide true diversification when you really need it. But hold on, the roller coaster can not be over, but as political risks and growth problems continue to give its brand on oil prices.
This article was drafted by Gabriel Mansueto, Branch Manager and Senior Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to provide investment advice and the content contained therein should not be interpreted as such. The company is licensed to conduct investment services by MFSA and is a member of Malta’s stock exchange and member of the Atlas Group. Board members or related parties, including the company, and their customers are likely to be interested in securities mentioned in this article. Investors should keep in mind that past performance is not a guide to future performance and that the value of investments can go down as well as upwards. For further information, contact Jesmond Mizzi Financial Advisors Limited, 67, Level 3, South Street, Valletta, at 2122 4410 or email [email protected]