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What the "Middle East Effect" means for oil prices and for you

by , 07 November 2013

You might have notice you're paying more for petrol now than you were a few months ago?

Well the good news is the price of oil is falling again. We're finally looking down at $100 per barrel of oil, from much higher prices.

With history as our guide, there's a clear indication that this downtrend for oil prices isn't over, either.

Today we'll get into an oily discussion and I'll tell you just where crude prices will land -- along with a two specific ways to play the sector...

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What is the “Middle East Effect” and how can I benefit from it?
The "Middle East Effect" refers to the fact that oil prices rise when there is any sign of conflict in the Middle East. 
 
The first time this happened was back in May, when oil was trading around $95. 
 
After it looked like a supply and demand driven market would pull prices lower, a flare-up in Egypt spurred oil up over $100/barrel. 
 
Then, in August, with prices at $105, oil looked a little top-heavy. Soon after that, trouble in Syria, sparking potential U.S. military action, drove prices towards the $110-mark. 
 
Now oil has dropped through the triple digit mark. So under the doctrine of "3rd time's the charm", let's have at it! 
 
You see, the last two times we've seen a Middle East related run-up past the $110-mark, we've seen prices strategically pullback below $85. 
 
It happened in 2011. It happened in 2012. And now, it's set to happen again.
 
And this presents a great opportunity… 
 
Why oil prices will continue to fall… And what you can do about it
The price of crude will eventually settle out in the 90s. That’s where it should trade in my opinion. 
 
But along the way I think we'll certainly touch the mid-80s. 
 
As you can see from the last two big pullbacks, prices tend to rubber band lower, towards the $80-mark, before settling out. 
Supply and demand are painting the picture. 
 
You see, with more oil coming online from U.S. shale plays and production from Iraq ramping up, the world has more than enough oil, and that will drive prices lower. 
 
From a demand side, China is slowing modestly at the same time efficiencies are having an effect in North America and Europe. 
 
Add it all up and the supply of oil -- in the short term -- is outpacing the demand. 
 
That's a recipe for lower prices, and we're seeing it right in front of our eyes! 
 
But, as we’ve seen, they won’t stay low!
 
Two ways to benefit from low oil prices
There are winners and losers to every price scenario with crude. 
 
But as long as oil stays above the $80 mark, which I think it will, U.S. shale producers will keep moving ahead full steam.
 
So one of the things you can do to make the most of lower oil prices is to get away from the Middle East and focus on American opportunities. That's the trend for oil companies and it should be the same for investors like you and me. 
 
And when the next Middle East flare up happens they'll be ready to cash in on higher prices.
 
Another way to take advantage is to keep any eye out for efficient players in the oil industry and use any pullback in oil prices as a solid buying opportunity.
 
Here’s to rooting out rewards!
 
Y’ael Shirley, 
Resource Economist, Resource and Scarcity Report


What the "Middle East Effect" means for oil prices and for you
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