Friday, November 28, 2014

Oil On The Streets

OPEC decided not to cut production, no surprise. Who cares about maximizing profits, if the demand for your goods is declining?

Global GDP is trending downwards while yields are, I dare say, crashing down all over the world. Must be because the economy is recovered, right?

Now, while I don't rule out that cheaper oil might be good for non-oil businesses, it is going to be a real bitch to the USA. Since their "shale boom" recovery, they have been aggressively expanding their oil production with the view that oil is only going to go up. Most of the shale oil producers don't make money with oil under $70.

Don't get me wrong though. I believe that oil is going to go up in the long run, and drag along with it all other energy alternatives that progressively price themselves to be viable alternatives with oil gets too expensive. We're living in a world run by an insatiable need for electricity. Are you reading this post on an electronic device, or did someone print it out on a piece of paper? I thought so. However, along the way we can experience some bumps and I believe that this is one bump right now.

I see things in the oil spectrum getting a lot worse before it becomes a lot better. (one of my reasons why... consider this a reward for exploring my links) Just how much oil do you need to do share buybanks from low interest rate loans? Not much at all. If the economy is hoping that "lower gas prices" will help "give the consumer more confidence" and "reduce business costs", well, what can I say? Maybe not?

I think the drop in oil is simply due to oversupply, or conversely, the much less used word, lower demand. No one wants to say such taboo words, but I ain't a financial journalist. While a lot of the marginal producers suffer, the big players will be able to supply oil still. The question is: Will demand be able to consume enough oil to keep prices from sliding?

The current narrative that I am working with from a distanced perspective is that the US will be correcting late into next year, bringing down oil prices with it. I think it is just the old age of the bull. Investors are up to their neck in stocks. Millenials sitting on the sidelines is bullshit. These people don't save any money, let alone have spare to allocate in stocks. I just don't see where else the fuel can come from realistically. Anyone who wants to be in is already in. Anyone that has stayed out is sure as hell ain't going in at these prices. But in our centrally planned world run by Keynesians, anything is possible. So, while I am bracing myself (and portfolio) for a global slowdown going into next year, I am not betting the house on a crash. I am staying nimble, because honestly, nothing makes sense anymore.

Want know the real reason why oil dropped? I think it's because just now my neighbour sneezed at midnight.

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