Posted on 12/22/2014 5:51:44 AM PST by thackney
Yes, oil closed below $60 on Friday, but the U.S. stock market closed up – way up from Tuesday’s close. The Fed’s action/non-action might seem the cause, but that looks like coincidental timing. With oil stocks like Chevron selling at both extremely attractive valuations and strong price support levels..., the market turnabout was waiting in the wings, only needing a gentle push to hit the stage in full action.
What is noteworthy (and disturbing) is the ease with which commenters tossed about fear-inducing descriptors like “plunge,” “rout,” “crash” and “panic.” Following those emotional portrayals were the typical (and erroneous) visions of widespread and worldwide financial and economic tumult. Missing, until late last week, was the logical analysis of the positive and negative effects along with the possible demand/supply adjustments from lower oil prices.
Even in The Wall Street Journal this weekend, there was an attempt to divorce the positives from the negatives by labeling the former as “effects to come” and the latter from “today’s drivers.”...
This brings us to what just changed — why the previous “panic” sell-off will likely not recur and how a healthy oil (and oil stock) market is likely returning.
First, realizing that investors should look beyond today’s speed bumps and to the road ahead...
Second, understanding that commodity price moves always have multiple repercussions...
Third, recalling that speculators are important, but that they come at a price...
It appears we can say “good bye” and “good riddance” to the oil mega-fear episode. Reason and common sense look to be back and, with them, a proper focus on the future. How will all the details of the oil price drop play out? Hard to know, but it will be interesting to see.....
Important: Do not accept today’s oil price as the new, established level...
(Excerpt) Read more at forbes.com ...
Pretty much every financial article I read is designed to move investor sentiment one way or the other.
Either they are supporting a position for financial gain or they are throwing out a WAG so they can later claim that they “called” whatever market change occurred.
It’s all BS and all rigged.
Much of the commentary which I have read during the last several weeks appears to have been written by oil noobies.
All Sturm und Drang, no real analysis that would hold water. Maybe momma took some of the sugar out of the kids Cheerios.
The almost straight-up moves at the end of the week were due to intense buying by Wall Street banks and brokerages—Recipients of the Fed’s largesse—To maintain the holiday shopping spirit.
Journalists interject their policy views when they attempt to identify the causes of market declines. For example, if you are an environmentalist looking for a dark side to oil price declines because you think energy should be expensive, you’ll attribute the decline to low oil prices. If you are a pacifist/leftist, you’ll attribute the decline to the outbreak of a war that you don’t like.
My hypothesis is that the market was in a bubble. When this happens, it becomes risk-averse and super-sensitive to developments that would not otherwise affect it.
Thoughts?
I find their primary purpose is to get an article out, while the topic is on many minds. Reality is there are so many impacts to the oil market, it is never just one or two items effecting price. But some days, panic buying/selling drives prices beyond where the same conditions will stabilize for a time.
My hypothesis is that the market was in a bubble.
Most will agree, conditions have changed. The rate of growth of total supply is larger than the expected growth of total demand going forward. Previous forecasts of demand growth were higher 6 months ago.
Most would have bet (and did in the futures market) that OPEC would not allow prices to drop this fast this far. Most of the OPEC nations have expressed a desire to cut production. But that takes a unanimous vote and Saudi and some others were better prepared for an eventual fall in price. My take is Saudi is not interested at this time to cut their own production and market share, to save those that did not prepare and continue to overspend.
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