While the markets continue to hype over the cryptocurrency arm of the Jubilee Ace project, the company continues to quietly maintain its 3 prongs, diversified approach towards trading and fund allocation, cementing the multi-faceted approach towards growing the firm’s capital.
Jubilee Ace’s Chief Investment Officer, Shawn Colbert shared in a recent company briefing that for Jubilee Ace to continue to expand, it is important and critical that the growth comes across its various divisions.
With a review on their Commodity Division, he stated that the Commodity markets can be volatile, and there may appear to be no reason for their movements. However, as a rule, their price movements are a function of supply and demand. When the market shows a lower supply, prices tend to rise.
He added that there are three chief reasons why commodity prices move higher or lower. The first is the fundamental state of a commodity market. If current inventories exceed demand, the oversupply tends to drive prices lower. But if the demand is greater than supplies, the inventory deficit tends to push prices higher. Secondly, commodity prices fluctuate due to the technical condition of the market. Thirdly, Price charts often drive the behavior of investors, traders, and other market participants. Demand-supply is the key factor behind the volatility of the market as well as currency moves, geopolitical matters, economic growth, and government policies are the other factors that influence prices of the commodity in the market.
Crude Oil: Crude oil’s price affects the economic ecosystem at every level, from family budgets to corporate earnings to the nation’s GDP. Crude oil prices are also incredibly sensitive, changing quickly in response to news cycles, policy changes and fluctuations in the world’s markets and price drops and spikes can send global exchanges into a tizzy.
Crude Oil Supply: For several decades, the Organization of Petroleum Exporting Countries (OPEC)has been the elephant in the world’s trading floors, with its oil-producing member nations working together to determine prices by boosting or reducing crude oil production. OPEC’s every move is watched closely by governments, oil companies, speculators, hedgers, investors, traders, policymakers and consumers. The supply of crude oil is also determined by external factors, i.e, weather patterns, exploration and production (E&P) costs, investments, and innovations.
Crude Oil Demand: Strong economic growth and industrial production tend to boost the demand for oils. Other important factors that affect demand include transportation, population growth, and seasonal changes.
Arbitrage Opportunities: In the financial market, varied trading strategies can be employed depending upon one’s appetite for risk, investment capacity, time frame, etc. One can go for outright purchase/sale, long term investment, hedge or arbitrage.
Basically, an arbitrage involves simultaneous buying and selling of an asset in order to profit from the difference in price.
Below are the three necessary conditions required for the arbitrage opportunity to arise:
The given asset should trade at different prices in all the markets
Two assets with identical cash-flows should trade at different prices
An asset with a known price in the future must trade today at a different price than its future price discounted at the risk-free interest or cost of carrying as in the case of commodities. As a result of arbitrage, price of an asset tends to converge and the speed with which it happens so reflects the efficiency of that market.
While arbitrage trade is visibly risk-free and may have the potential to generate better returns on investment than the traditional investment options, one should be aware that this trading strategy is not completely risk-free. Returns are not guaranteed and the ratio of profit/loss may vary from time to time depending upon the market conditions.
The global oil trading industry is experiencing substantial change. A blend of low commodity prices, capital requirements and increased price transparency has eroded margins, reduced arbitrage opportunities and modified the players participating in this competitive arena.