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