Commodity prices have spiked to an all-time high (options strike price is now at $200 ) especially the oil-related assets and investments like ETFs. Some analysts predict that crude-oil prices will rise to $150 a barrel. Ht So, is it time to invest in oil? For long-term investments of more than four years, the simple answer is no, but only if you have a correct understanding of the reasons behind the fluctuations. Investing in commodities due to geopolitical events and uncertainties would likely be the wrong reason. As Andy Serwer , editor-in-chief of Yahoo Finance put it, “over time we recover and move on. Meaning at some point, Putin will fail. Sadly there will be much pain and suffering before then.” That said, the uncertainty and supply disruption in oil in the short term has led to the bullish upward trend. How markets responded to world events in history. (Yahoo Finance) Nonetheless, the damage, suffering and potential devastating commodities and food shortage that the war in Ukraine has caused and will continue to cause cannot be discounted. During these challenging times, we need to step back and see the big picture of past and current trends, especially for retail investors, to better evaluate and consider whether oil and commodities are good long-term investments or short-term trades. Although there are many fear sentiments projected in the general and financial media, we should take them with a grain of salt. Therefore, below are some detailed reviews of historical performance data and straightforward technical analysis and indicators to properly navigate the volatile oil market. Investor fear index: high but less than 50% of pandemic
As scary and volatile as the situation and market are, we should have grown more versatile after going through the critical stages of the COVID-19 pandemic. In the financial market, the Chicago Board Options Exchange’s Volatility Index ( VIX ) is a good indicator and measure of the level of “ implied volatility ,” based on the S&P 500. This indicator, also referred to as the ” investor fear gauge ”, measures investor sentiment . A higher VIX value (above 20) indicates volatility, uncertainty and drawdown in the equity markets and suggests potential rising oil prices. Currently, the VIX chart tells us that the market is in much pain and fear, but we are still better off than March 2020, when the VIX was at a historical second high (85.47). Meanwhile, during the financial crisis, the market was in a much worse situation, and the economic shock was greater, so the VIX spiked to a historic peak of 89.53. Compared to the September 11th attacks, which came as a much worse surprise, the VIX was at a 49.35 high. As for now, the VIX is in the range of 16 to 39 between January and March 2022.
As you can see in the chart below, the VIX in March has been constantly near or above 30 since the war in Ukraine. There is indeed much fear and pain in the market, but it’s not a shock. At least, retrospectively, there had been signs from Russia’s political agenda and history over the years. $VIX historical monthly chart between 1997 and March 2022 (Yahoo Finance) In the current economic and social climate, volatility is inevitable. “The certainty about uncertainty has never been higher,” said Avi Felman at GoldenTree Asset Management in a Tweet. The pandemic hit every social class worldwide harder than ever before. The governments bailed the market out and turned the market around financially in 2020 with Quantitative Easing (QE) and stimulus checks. At the beginning of the pandemic, the situation was one of the worst catastrophes we had ever experienced – invisible, then untractable; a mysterious virus without any immediate medicine, vaccine and more than six million deaths globally as of March 15th. A black-swan event caught the world by surprise and completely off-guard. Yet, humans are more resilient, adaptable, transformative and innovative than we could have imagined. The world is empowered with a wealth of various resources, alternatives and technologies.
While we slowly see recovery signs, we are now confronting more human (created) problems: war in Ukraine, inflation or even worse, stagflation and interest rate hikes. The world is still vulnerable but less than in 2020. Some analysts refer back to the 1970s energy crisis and recession; if that happens again, it’s not called a recession; it will be a regression. What have we achieved and progressed in life over the past decades? We have flown civilians to […]
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