Everyday, Everyday I Have the Blues
By John Stoltzfus,
Chief Investment Strategist
Trend Analysis
Market Strategy Radar Screen Weekly - December 1, 2014
In this article:
- Market Analysis
- S&P 500
- Asset Allocation
No Country Is an Island
Decoupling Debunked – Yet Again
Changes in consumer shopping patterns stateside and the recent plunge in the price of oil are on the minds of investors coming into the post-Thanksgiving holiday work week.
With the price of oil, as tracked by WTI (West Texas Intermediate), falling as low as $66.15 over the holiday
week, and even lower intraday this Monday morning, and with gasoline averaging around $2.79 stateside, there's suddenly considerable opportunity for investor sentiment and projection to run the gamut from positive to negative and back again.
As we wrote this note on Monday, WTI had tumbled below $65 per bbl before it began to rally, bouncing off lows unseen since mid-2009.
Over the weekend, OPEC had decided to maintain output even as members grumbled and geopolitical risk increased from a potential for further political destabilization in countries dependent on the price of oil for sovereign program funding and economic growth.
OPEC, which supplies about 40% of the world’s oil, exceeded its official target for a sixth straight month in November, even after cutting output some. (The group pumped 30.56 million bbls a day or 424,000 bbls less a day than in October, per a Bloomberg survey of oil producers.)
To us it appeared that investors reacted to OPEC’s decision this weekend interpreting the organization’s message as saying “let the market decide where the price of oil falls…let the cards fall as they may…”
Oil prices plunged over 38%, from a high of $107.26 on June 20th to $66.15/bbl last Friday, as North American producers pumped oil at their fastest rate in 30 years.
The effect of such increased production on the price of oil has been amplified by the current slowing of economic growth (Europe and China) as well as the often not mentioned dramatic increase in oil-use efficiencies in both consumer and commercial applications ranging from automobile fuel consumption to reduced input costs for manufacturers and benefits to broader industry applications such as the cost of transporting goods, personnel and customers.
