Displaying items by tag: oil
Polls have Biden well ahead of President Trump at the moment. In fact, some pollsters say that Biden is further ahead leading up to election day than any candidate in the last 20 years. Markets have somewhat followed this and are clearly anticipating a Biden victory. That said, there is almost nobody who doesn’t think the race will be very close. So, how to play it if Trump surprises the markets and wins? Three sectors seem like they would benefit most strongly: traditional energy companies, defense companies, and large-cap banks. Trump’s light-touch regulatory approach would help energy companies and large banks, while defense spending would probably continue to rise under Trump.
FINSUM: Most agree that if Trump surprises, the market is not going to shoot higher like it did in 2016, primarily because there is not a big proposed tax cut.
When you think of oil, you don’t normally think of an industry that would gain from a big win by Democrats in an election. But as it happens, oil could very well gain if Democrats sweep the presidency and congress. The reason why is slightly perverse, but that makes it no less relevant. The concept is that Democrats would be bring new regulation around fracking; specifically, regulations that limit new drilling but allow existing projects. What this would mean is a steady rise in prices as inventory becomes constrained as the recovery proceeds. For example, Morgan Stanley is forecasting almost a 100% gain in natural gas prices next year.
FINSUM: Oil and gas are a physical supply and demand market, and if regulations keep supply in the ground, then prices will rise.
The oil market has been the story of the week for markets. The price of black gold fell to -$37 dollars on Monday. The market would technically pay you to take oil off its hands. Even at $20, most of the US oil industry is out of business, so what can the President and the government do to save the market? There are several options. For instance, the government could buy a hundred million barrels of oil for its strategic reserve, or it could create new storage space. However, the option the markets favor is for the government to buy mountains of oil while it is still in the ground, and have producers pay them back as they extract it.
FINSUM: If the government wants to save the US oil industry from a mass bankruptcy—and resulting rupture in the high yield market—it will need to take action.
Is the oil market a leading indicator of what is to come in the economy? Do we have way more supply and infrastructure to deliver it than there is demand to gobble it up? Oil was at $11 a barrel this morning, a mind boggling price. Stocks, on the other hand, have rallied hugely, to the point where it sometimes seems like investors have forgotten the country is shut down. Oil is obviously an idiosyncratic market, but if you really take a look at the situation, it is falling because of a big plunge in demand.
FINSUM: Is the oil market just smarter than equities right now? It does seem entirely possible that given the inevitable contraction in consumer spending, we may have more infrastructure to produce and delivery goods and services than we do demand, which means stocks could be in for a very rough patch.
The sole bright spot in markets today is the big jump in oil prices. US oil rose about 10% earlier today on an announcement by President Trump that a deal between Russia and Saudi Arabia was close. The two parties have ben locked in a price war, which alongside the virus, has conspired to bring oil into the teens from a high of around $63 per barrel in January. Trump says a deal could happen within a “few days”.
FINSUM: Oil hit an 18-year low this week. In our opinion it is only a matter of time until oil producers come to an agreement to try to fix prices higher.