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Algae’s Impact on Oil Trading

The most highly traded commodity in the world is oil, and as such, there is often a lot of movement in its price on a daily basis. A lot of people are wondering this week, however, how the new process that can quickly convert algae into crude oil will affect the worldwide prices of oil–especially those interested in trading oil products. And while this process has been heralded with a lot of applause because of the potential impact this could have upon the environment, it really looks like it will have absolutely no bearing on the price of traditionally processed fossil fuels.

How can this be? Well, alternative fuel sources, such as biofuels, have been around for years and they have never had even a remote impact upon the supply and demand of crude oil. In reality, biofuel is used mostly in agricultural settings and is almost never used outside of farms. It’s not really that expensive to create or use, it’s just very inconvenient because of the ease of using the existing infrastructure when it comes to gasoline for vehicles. Also, the majority of vehicles are not even currently equipped to use this type of fuel since it is compatible with diesel fuel.

However, this new development will likely have far reaching power. It’s surprisingly simple to produce the new fuel. It revolves around high pressure and high temperatures. It’s also really quick. The finished product takes less than an hour to produce. Compare that to the millions of years crude oil takes to fully develop before it is usable. The fact is, crude oil takes so long to develop that it will eventually run out if we don’t change our practices. Whether that will be a hundred years from now or a thousand is up for debate. But when this does happen, it looks like there will be alternatives. Still, this is way too far away to have any sort of impact upon the markets, so it should play no role in your trading right now.
Algae's Affect on Oil Trading
It should play no role, but will it? That’s a bit harder to gauge, but there is a chance that the price of oil may drop for a very brief time. It shouldn’t last long, but it may occur. If you have any doubts in how oil futures will act, your best choice is just to not put money in the market for a few days. This is pretty much only true of the very short term trades, such as commodity day traders and those that trade binary options.

The real impact will be felt within the companies at the forefront of alternative fuel sources. For example, Sapphire Energy and Phillips 66 (stock symbol PSX) recently announced a joint venture to help bring algae based green technology into a more mainstream commercial setting. It is very likely that the public half of these companies–PSX–will see a big boost in stock price for a while. In fact, this has already begun to happen. Even over the last week, PSX has gone up about $2 per share. If there project is successful, these gains will likely be long term.

This is exciting news within the tech/energy sector. Look for this event to shake up other companies with similar ideals. The Market Pull Principle is a very real thing, and when like companies move in similar directions idea wise, the effects can be far reaching. When one company moves, it almost always has some sort of impact on other companies in some way. This can go beyond just companies, obviously, and can lead to changes in currency prices, too, if a nation were to jump onto this trend and make it a state-sponsored program. Within nations with smaller economies, this could actually have a significant impact, so it is definitely keeping under consideration for the future.
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