Displaying items by tag: energy

(Houston)

Oil has been falling for several weeks, with prices dipping below the $50 mark for US crude. However, over the last couple of days, the price of black gold has surged. Investors may be left wondering what it all means. The answer is that Saudi Arabia and Russia announced their intentions to work together on another output cut, which sent prices surging. On the sidelines of the G-20, the Saudis and Vladimir Putin agreed to extend their output cuts. At the same times, Canada announced a curb on production.

FINSUM: Just as we have been saying, current movements in oil are particular to the sector and not indicative of the wider economy.

(Houston)

When oil falls it tends to boost the US economy. For all the growth of our shale industry, the US is still a net importer of oil. When prices fall, Americans tend to spend more on other items that boost the economy, so oil prices sinking is usually good news. However, this time around, the fall will be bad, at least according to the Wall Street Journal. The problem is that the oil industry has grown large enough that capital expenditures in the sector make a major impact on growth. Accordingly, the capex cut that will come from falling prices will be prove a net detriment to GDP figures.

FINSUM: When oil fell in 2014-2016, US economic output also slowed, so this is a very real affect. What is worse is that it will likely show up in 2019, which is already looking to be a much weaker year.

(Houston)

Oil prices have taken a nose dive lately, and yesterday officially fell into a bear market. Prices on Brent crude fell below the $70 per barrel mark for the first time since April. US crude is even lower, with prices sitting at $59 per barrel. For most of the summer the market was worried about undersupply, but the US has been more generous with sanction exemptions on Iran, and the US, Russia, and Saudi Arabia have all boosted output, alleviating fears and pushing prices lower.

FINSUM: The oil market seems to be trading based on supply and demand fundamentals—just like it should. It is very hard to predict how things will progress.

(Houston)

Stocks fell around 0.5% yesterday after being down much more. Oil fell 4%. The reasons why are many, but mostly it seemed to be bad timing. Saudi Arabia announced it would pump more oil at the same time as the market is worried about economic growth and aggregate demand. Invesco’s chief market strategist summarized the situation best, saying “Markets have underreacted to tariffs, because they weren’t really tangible. Now it’s getting more tangible with the IMF lowering growth forecasts and showing up in what could be seen as canaries in the coal mine … That’s putting downward pressure on stocks and on oil”.

FINSUM: We feel like oil is too high for where it should be right now. That said, the geopolitical risks surrounding Saudi Arabia could have a directly negative affect on gross oil supply, which would be positive for prices.

(Houston)

You want to know an asset class that has performed well in periods of rising rates? Take a look at oil. In periods of quickly rising rates and yields, oil and oil-related stocks have done very well. In fact, Van Eck’s Vectors Oil Service ETF (OIH) has been the best performing fund of its type in such periods. “Shares in the VanEck Vectors Oil Services ETF saw a 6.5 percent boost over the month when rates jumped, while shares of the United States Oil Fund ETF ran up 4.5 percent”, according to Kensho.

FINSUM: Oil and banks tend to do well in periods of rising rates. The former because rising rates usually mean a strengthening economy, and the latter because of both an improving economy, but also wider net interest margins.