28 March 2014
Reasons for Rise in the Price of Crude Oil
There are certain factors that affect the rise in the price of the crude oil. They are as follows:
ü Inverse Relationship of price of gold & crude oil:
Gold's exchange traded fund, SPDR Gold Shares (NYSE: GLD [FREE Stock Trend Analysis]), and its oil counterpart, United States Oil (NYSE: USO), should have an inverse trading relationship with each other.
When the price of oil is down, gold should rise. That shift generally means economies are weak, so there is less demand for the petroleum products needed to run the factories and motor vehicles of a modern economy.
Conversely, when oil prices increase due to demand, gold falls in value; as there is little interest in it for its role as a traditional safe haven asset. But the growing economy of India could lead to both the price of gold and oil rising at the same time.
India is currently the world's largest purchaser of gold. Meanwhile, the International Energy Agency predicts India's demand for oil will grow more than any other country. As the country has the second largest populace in the world, and one out of every six people living on the planet is in India, that should take the prices of SPDR Gold Shares and United States Oil much higher from the increased demand for each commodity.
It will also be bullish for publicly traded companies in each sector, ranging from prominent blue chips like Exxon Mobil (NYSE: XOM) and Goldcorp (NYSE: GG) to promising small caps like Octagon 88 (OTC: OCTX) and Wishbone Gold PLC (OTC: WISHY).
ü Rupee is getting Weaker:
At the same time India's currency, the rupee, is also very weak. That is due, in part, to the economy struggling to recover from the Great Recession. When an economy is tottering, the value of its paper money almost always falls. From that, investors pile into gold and silver assets, in each's role as a traditional safe haven holding.
With Goldcorp and Wishbone Gold PLC having valuable resources in Australia, each should profit from increasing buying from India due to the proximity in Asia, as detailed in a recent article in Benzinga.
ü Change in the Indian Economy:
The third reason is the change in the Indian economy. As it modernizes, India is moving towards cleaner fuels from more efficient sources. That will favor oil and natural gas concerns such as Exxon Mobil, Octagon 88, and others, no matter where the operations are located.
Higher prices for oil lift the value of all assets in the sector. India is a major consumer of coal, but eventually that will change. Oil and natural gas are the favored fuel sources as an economy advances, as each are more efficient than coal and less damaging to the environment.With such a major portion of the world's population, the economy of India is in position to move the price of any commodity. As the economy starts to grow, that should happen again with gold and oil. Assets in the sector, such as SPDR Gold Shares, United States Oil, Wishbone Gold PLC, Exxon Mobil, Octagon 88, Goldcorp. and others should perform well as long-term investments.