Well, howdy after a nice weekend, at least for me. Maybe not so for investors and traders, as the market is opening this week on the same negative note it left us on Friday. Apparently, there is residual consternation in the market, or maybe all the technical predictions floating about are becoming a self-fulfilling prophecy. No matter, the market will eventually find solid ground. In the meantime, however, one has to make a living, right?
I guess if you are short-term trader, shorting oil is one way to go. It is taking a beating and all. I repeat all the news is not good. Even if Venezuela, Iran, and Russia conspire to somehow reduce production, the Saudis and their allies will not go along, no way no how.
The mouth pieces of the Saudi government have made it quite clear they are not going to capitulate here; they are not going to cut production and then have the same cheating that went on the last time they cut production. No, the only way out of this downhill spiral is if the current price fall results in the US cutting back production, and that, it appears, is beginning to happen.
- Falling crude oil prices are taking a big toll on the U.S. oil rig counts, causing the biggest weekly drop in in more than 20 years.
As of last week, some 61 rigs pulled the plug, or, in this case, inserted the plug, leaving some 1460 or so in operation. The question is does it matter? What does the Wall Street Journal think?
- Oil prices would need to fall at least another $20 a barrel to choke off the U.S. energy boom, industry experts say, though some smaller American producers would face serious problems from a more modest decline.
Another question to ask is will this plunge in prices ripple through with negative consequences for the US economy and the market?
- The Saudi oil price war is taking on capsulitis and the drop in rig counts could be signaling more problems for the U.S. energy sector as well as the banks and the junk bond markets that lend the drillers money.
Okay, so what if a bunch of folks lose money in the junk-bond market and who cares if some banks take a hit for some bad loans? That, my friends, happens all the time in this game. It will be time to worry when the losses become rampant, and even then, the effect might not be as bad as some are making it out to be, at least not economically.
- The good news is that gasoline prices continue to plunge and it is making the potential economic fallout easier to take.
If oil keeps dropping, say, down into the $30 zone, one would be hard pressed to find a better, more effective, economic stimulus for the US and global economies and one would find it difficult to see oil returning to its former glory, once it hits those deep levels.
- However, with the deflationary pressures building across the globe the economic fallout from the oil price crash may have only just begun.
Saudi billionaire businessman Prince Alwaleed bin Talal agrees with me on this, and he is not one to suggest something if it were not true, right?
- But I’m sure we’re never going to see $100 anymore. I said a year ago, the price of oil above $100 is artificial. It’s not correct.
In any case, the market finished down again today, so, unless you are going to short oil, I suggest just sitting tight. There will be plenty of time to make lots of money later when the market settles down, and the market will settle down, especially when it gets used to the price of oil going down and down.
Trade in the day; invest in your life …
