Falling Oil Prices
Falling Oil Prices, With the doom, gloom and dire warnings of an imminent market collapse that that fill my mailbox everyday I realize that I am in the minority in believing low energy costs are good. As readers of my column know, I don’t believe the end is near. I could be wrong but that is what makes a market. You can’t have a buyer and a seller without a difference in outlook. (and motive)
First, the good news. The Energy Information Agency released its Short Term Energy Outlook this week (01/13/2014). For those hoping oil prices have maybe found some sort of bottom, the government agrees. And there is a little good news for those of us who believe cheap energy is just the stimulus a modest economic recovery needs. The EIA sees prices for the year averaging in the mid-$50 per barrel range which not to far off the $40 range oil is trading in now.
The report has happy news for consumers noting that the U.S. weekly regular gasoline retail price averaged $2.14 a gallon on January 12 which is the lowest since May 2009. Forecasters do expect prices to rise this year and average about $2.33 a gallon. The bottom line; “The average hosehold is now expected to spend about $750 less for gasoline” this year compared to last year. I don’t know anyone who can knock that. In fact, I filled up my car this morning and did a double take when I saw the total price to fill up. For a minute I thought there was a mistake and the car wasn’t full.
The good news doesn’t end there. Natural gas prices inventories are 9% higher than last year and the price is just about 22% lower. This winter, so far, has not been as brutally cold as last year and production is up so we are paying less to heat our homes. As a resident of the great Northeast who heats his home with nat gas I can’t tell you how happy that makes me.
Total crude oil production last year averaged about 9.2-million barrels per day in December and the forecast projects production to average 9.3-million barrels per day this year. That is not a record. The record is held by the year 1970, when production averaged 9.6-million per day.
When receiving time to panic emails about the coming market crash it is useful to remember the people sending those emails have their own agenda. Granted there are some very salient points about weak energy stocks, reduced revenue and tax revenue. Oil producing states have been dealing with the volatility of oil prices for years. This ain’t their first rodeo.
Sam Stovall, Equity Strategist with S&P Capital IQ has seen a few market rodeo’s himself and in a recent report to his subscribers Stovall made a very compelling point about energy stocks. He noted that the rolling 12-month relative strength (RS) for the S&P 500 Energy Index is 20% below that of the S&P 500. The RS for the S&P Small Cap600 Energy Index lagged even further. In other words, you can make the argument that the energy sector presaged the decline in oil prices as investors reflected their concerns about weak economic recovery and supply exceeding demand.
So, which came first? The decline in energy stocks not falling oil prices. Stovall’s research raises an interesting question. Rather than worry about a coming market crash should we be analyzing whether now is a good time to buy energy stocks?
First, the good news. The Energy Information Agency released its Short Term Energy Outlook this week (01/13/2014). For those hoping oil prices have maybe found some sort of bottom, the government agrees. And there is a little good news for those of us who believe cheap energy is just the stimulus a modest economic recovery needs. The EIA sees prices for the year averaging in the mid-$50 per barrel range which not to far off the $40 range oil is trading in now.
The report has happy news for consumers noting that the U.S. weekly regular gasoline retail price averaged $2.14 a gallon on January 12 which is the lowest since May 2009. Forecasters do expect prices to rise this year and average about $2.33 a gallon. The bottom line; “The average hosehold is now expected to spend about $750 less for gasoline” this year compared to last year. I don’t know anyone who can knock that. In fact, I filled up my car this morning and did a double take when I saw the total price to fill up. For a minute I thought there was a mistake and the car wasn’t full.
The good news doesn’t end there. Natural gas prices inventories are 9% higher than last year and the price is just about 22% lower. This winter, so far, has not been as brutally cold as last year and production is up so we are paying less to heat our homes. As a resident of the great Northeast who heats his home with nat gas I can’t tell you how happy that makes me.
Total crude oil production last year averaged about 9.2-million barrels per day in December and the forecast projects production to average 9.3-million barrels per day this year. That is not a record. The record is held by the year 1970, when production averaged 9.6-million per day.
When receiving time to panic emails about the coming market crash it is useful to remember the people sending those emails have their own agenda. Granted there are some very salient points about weak energy stocks, reduced revenue and tax revenue. Oil producing states have been dealing with the volatility of oil prices for years. This ain’t their first rodeo.
Sam Stovall, Equity Strategist with S&P Capital IQ has seen a few market rodeo’s himself and in a recent report to his subscribers Stovall made a very compelling point about energy stocks. He noted that the rolling 12-month relative strength (RS) for the S&P 500 Energy Index is 20% below that of the S&P 500. The RS for the S&P Small Cap600 Energy Index lagged even further. In other words, you can make the argument that the energy sector presaged the decline in oil prices as investors reflected their concerns about weak economic recovery and supply exceeding demand.
So, which came first? The decline in energy stocks not falling oil prices. Stovall’s research raises an interesting question. Rather than worry about a coming market crash should we be analyzing whether now is a good time to buy energy stocks?
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Falling Oil Prices
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