By Cesar Zambrano
22 July 2010
In our current economic age of globalization, asset classes are becoming increasingly correlated. Movements in the equity markets affect currency values, which affect economic growth in corresponding countries, which affects other assets such as real estate, and the correlations go on and on. One of the most clear asset correlations that currently exists in financial markets is the relationship between the oil industry and the foreign-exchange market.
The price of oil is extremely volatile. Its price movements are subject to a vast range of factors including economic growth, geopolitical events, supply and demand, and host of other factors. The volatility in oil prices can wreak havoc on oil industry leaders such as refineries and producers, but it is a haven for speculators. Individual traders and hedge funds alike have been speculating on the price volatility of oil for decades.