Anyone for oil?? Anyone?? Bueller?

So the stock and bond markets are yawn-worthy these days.  What’s a trader to do?  Clearly, it’s time to sell oil:

Excuse me, your oil is leaking.  Source: thinkorswim by TDAmeritrade.

Excuse me, your oil is leaking. Source: thinkorswim by TDAmeritrade.

WTI crude is down about 25% from mid-year highs.  Since end-Sep, there has been a pretty much straight-line fall of around $20.

A lot of headlines can, have, and will be written about this fact.  Among the themes I’ve already seen:

  • Russia is doomed, as are a lot of EM countries which rely on high oil prices to sustain government spending.
  • US shale oil is doomed, as break-evens for these wells is around $75.  That’s the end of a great run in job creation, US oil self-sufficiency, etc. etc.
  • Global industrial production will get a nice lift from cheaper energy prices.
  • Global inflation will have a big drag.  Probably not exactly what the world needs, with inflation at or near zero in much of the developed world.

And some more of my thoughts, which I haven’t read other places (yet).

  • Alternative energy, particularly electric cars, will face a big headwind as Americans see sustained gas prices < $3.
  • Remember Scotland’s referendum, which relied on oil revenues to handle the gap in government spending?  They assumed $110/barrel.  So they would already be about 30% in the hole.  Ouch.
  • Systematic trading is a great way to take advantage of these types of moves.  I’m pretty sure there aren’t many fundamentals guys staying short oil at this level (or likely remained short at the $80 or $75 level).  Momentum strategies would still be short.
  • Tying together my previous posts on the subject:

In sum, thanks to the oil price for keeping markets lively the past week or so.


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