Because oil is a commodity, it will eventually hit a rock bottom price (but it can’t be worth nothing) and gradually hit the peaks and valleys again over time. The game of buy and hold, however, remains a high-risk endeavor, particularly in cases of a global glut like that experienced in the past few months. However, oil has always been cyclical, and veterans in the industry know that the waiting game can pay off considerably when done with enough tact.
In the past month as of writing, things have seemingly looked up for oil prices. Oil prices rose as much as 1 percent on September 24, caused by drawdowns from the vast inventories of U.S. crude. An increase in inventory withdrawals, coupled with a more robust economic climate, could indicate a growing demand for fuel. This is bolstered by lowering interest rates, which could cut inventory costs in the meantime.
If consistent, this turnaround bodes well for most of the industry, although skeptics are not rejoicing yet. There was still a cap to the rising prices, caused by tumbling equity prices on Wall Street that inevitably remind observers that the recovery of the industry is still tied to the rest of the world economy. The latter, it must be remembered, has not been at the best of states in recent months. On a positive note, major buyers like China are beginning to rev up demand once more, indicating some robustness to the recent gains.
In spite of the aforementioned cap, the gains brought about by the inventory draws still represent a cautiously optimistic outlook for the industry, being the first major positive turnaround in the past three sessions. For many of the players in the petroleum industry who decided to play the game of buy-and-hold, the risks taken may yet prove worthwhile.