It is difficult to watch the market day in and day out and not pay attention to the plight of oil. This reality kindles in me a spark of compunction, a sense of regret that I, writing daily about the market movement, am compelled to write about oil. Actually, my reality is such that I must write about not only oil, but the other headlines that might, or might not, actually be the underlying reason for market movement on any given day.
In any case …
- Economic turmoil in the European Union over Greece and U.S. crude inventories coming in at almost an 80-year high helped grease the skids for the oil market sell-off.
True enough, as of yesterday. Today, however, WTI crude is bouncing back, after a precipitous fall yesterday (8.7%). What we are now seeing are up and down swings in oil, similar to the swings in the overall market. Like the market, oil has to find its groove, and it will, but don’t believe today’s bounce is indicative of a strong move upward.
The 80-year high in US crude-oil inventories (403 million barrels) speaks to a strong fundamental that will shape the price of oil for the near term, despite what it is doing today. On the other hand, it is possible that in confluence with the QE program just firing up in Europe, oil could see a spike upward just past the near term.
- While oil looks like it hit a bottom, the biggest threat to that call would be a European crisis. Deflationary pressures in the Europe have been a major factor in the oil sell off.
Yes, they have, but QE has a remarkable way of creating overall demand, and when overall demand is created, demand for oil increases. If consumption of fuel in Europe increases, then this will help offset the huge inventories in the US. The impact will be something, but not much, as the US by far is the most voracious consumer of oil in the world. So, as I said, expect a spike but over the longer term, barring any major geopolitical crisis, oil should remain low and maybe go lower.
Now, I have a thought from the good folks over at State of the Markets. It is a thought for consideration, as the world of trading is far from what it was, say, even twenty years ago. Today, the offerings are abundant and, if played correctly, fruitful.
- The advent and popularity of ETF’s (Exchange Traded Funds) creates almost limitless opportunities for individual investors. No longer do you need to be a high powered hedge fund manager in order to have access to countries in the emerging markets, commodities, currencies, or – just about anything you can think of.
Now, with QE firing up in Europe, it might be a good time to get your money in the game over there and ETFs are one easy way to do it. So, go and get your money in the game.
Trade in the day; invest in your life …
