The key concern for folks who think about this stuff is: "Are the oil markets telling us something about the larger economy or not."Brent $49.16 up 64 cents; WTI $46.26 down a nickle.
And just to make things interesting, we're getting different messages from the equities than we're getting from the commodity....
The decline of oil prices to less than $50 a barrel has an undeniably positive effect on the global economy. From the U.S. to China, people are driving more and spending more, a much needed economic boost in generally glum times.See also:
But to investors, a too-low oil price can also be a sign of trouble. The price of oil has certainly dropped because of an increase in supply – specifically, OPEC’s refusal to cut production and the vast amount of shale oil and gas being pumped in the United States. But the price of oil is also a product of slowing economic growth and declining demand, especially from China, Japan and the Eurozone.
China, which is currently experiencing an economic slowdown, propelled roughly half of the annual world growth in oil demand over the last decade. “[T]he whole damn thing is driven by China. When the investment cycle turns down, everything goes down,” Andy Xie, a former economist for Morgan Stanley, told the Globe and Mail.
So what exactly is too low when it comes to oil prices? According to a recent survey of investors, the tipping point may be around $30.
Convergex, a brokerage house, recently surveyed 306 professional investors about what oil price would signal a global economic recession. Roughly a third of their respondents named a price of between $26 and $30.....MORE
The Opportunity In Shorting Energy Equities (XLE; XOP)