International crude oil prices plummet by 9%

Upon waking up, there has been a significant drop in international crude oil prices!

The opening price of $112.9 was already the highest for the entire day, followed by continuous fluctuations and a downward trend. By the time of closing, it was almost at the lowest point of the day, finally closing at $130.49, with a daily decrease of 9.14%.

Is the international oil price about to collapse? What exactly happened?

The recent sharp fluctuations in crude oil prices, how can we make good use of this characteristic in our investments? How can we grasp the related investment opportunities?

01, Sharp fluctuations

Looking back on the fluctuations in international crude oil prices, it started with the outbreak of conflict in Europe, but the highest point was on the trading days of March 7th and March 8th, when the oil prices reached or approached $130 per barrel. However, the common feature of these two days was that although the prices rose during the trading session, the gains were reduced by the time of closing.

Subsequently, the oil prices gradually fell, but after March 16th, the oil prices rose again, from $95 to above $110, with the highest reaching $116.64.

Yesterday's sharp decline brought the oil price back down to the vicinity of $100.

Over the weekend, when we reviewed the weekly fund gain and loss charts, we found that many of the funds at the top of last week's list were related to crude oil investments. This was due to the rebound from $95 to $116 after the oil price fell to $95.

However, the significant collapse and decline in oil prices yesterday can be foreseen, and this week's crude oil-related funds will once again appear at the top of the weekly loss chart.02, Short-term Impact

Whether it is crude oil prices or crude oil funds, the recent amplified fluctuations are a very obvious characteristic, with short-term price surges and plunges being influenced by short-term events.

The significant climb in oil prices is not due to a sudden burst in demand, but rather because everyone anticipates that future supply will be significantly reduced.

Since Russia is one of the exporting countries for oil and natural gas, it is quite normal for crude oil futures prices to climb sharply after the outbreak of conflict events.

After reaching $130 and then falling back, it then rises again from $95, but the second rebound has difficulty reaching the previous high. These signals indicate that the impact of the event is gradually dissipating.

Such short-term violent fluctuations influenced by events are actually not very suitable for fund investors' operations, because most of the current crude oil funds are QDII, with delays in buying and selling, and also delays in the net value published. Moreover, if you sell shortly after buying, there will be a substantial redemption fee within seven days.

Therefore, if you purchase such thematic funds, you must focus on the medium to long term and not just pursue short-term gains.

03, Inflation Factor

Here, we also need to consider inflation. The rise in oil prices is not due to inflation, but rather, the rise in oil prices brings about inflation and accelerates it. Therefore, we need to look for the more fundamental reasons for the rise in oil prices.

This reason stems from the loose monetary policies of the United States and Europe after the outbreak of the COVID-19 pandemic in 2020, continuously injecting liquidity into the market, leading to an overflow of market liquidity, rising prices, and all of these are concentrated in commodities, especially crude oil.The United States has just completed debt reduction and begun raising interest rates, while Europe is still hesitating. The contradictions and lack of coordination between the US and Europe have led to an increase in market uncertainties. Therefore, even without short-term events affecting the market, there is still a high likelihood that crude oil prices will slowly rise, which was reflected in the continuous fluctuating upward trend of international oil prices before the conflict erupted in late February.

Let's also refer to other types of commodities and find similar characteristics. During this period, whether it's general commodity funds or other categories besides crude oil, such as agricultural products, especially corn and soybean meal, or gold, and basic metals, the prices of these types have been slowly rising, and the related funds have also appeared at the forefront of the fund gain boards.

If investors are optimistic about the trend of commodities in the context of inflation, they may need to shift their focus from purely crude oil funds to other types of funds or to broader commodity funds.

However, in the medium term, it is important to pay attention to the shift in the US economic cycle. Prior to this, the US was in a phase of strong economic recovery with gradually rising inflation. But in the future, the US economy may continue to experience high inflation while the economy slows down, leading to a stagflation phase.

Due to the rapid interest rate hikes in the US, the stagflation phase may arrive earlier. From a forward-looking perspective, if the economy enters a stagflation phase, our investments should gradually exit the commodity sector, and in the end, we should hold some cash assets.

It is crucial to pay attention to the characteristic of commodities being prone to rapid increases and decreases. These types of funds are only suitable for short-term gains and should not become long-term investment options.