Markets Rocked by Oil Crash

Markets today were mixed in moderate trading. The Dow finished the day in the black, while the NASDAQ and S&P 500 ended it in the red. The Dow gained 5.74 points, or barely one-third of one percent, to close out the trading day at 17,408.25. The NASDAQ fell by 10.83 points to close the day at 5,033.36. The S&P 500 followed the NASDAQ into the red, posting a 2.66 point loss and ending the day at 2,083.39.

Crude Oil at 6-Year Lows

The price of crude oil is low and getting lower, that's no surprise.
What is a surprise is just how fast it's falling. The support points below $42 per barrel are completely untested, if they exist at all. With all of this supply and falling demand, where will oil end up this winter?

Quite a bit lower, probably. Winter demand is even slower than summer demand, and all of the oil that we're hanging onto through our strategic reserve is only going to impact demand further. After all, we're at the point now where our reserves are full and there is little to no pressure to add more.

Although production offshore and onshore in America will slow down this winter in some places, the one place it won't slow down is in Saudi Arabia. Right now, OPEC and low consumer demand have coupled up to give us crude oil cheaper than at any point in the past 6 years.

This isn't an entirely bad thing for the US economy, although most of the Energy Minerals sector is getting hammered. The glut of oil, along with a slight deflation of the dollar, means that gas prices at the pump are going to keep falling, maybe around $2.10 by the late fall.

Unless something changes at OPEC, or the EU gets its act together and demand overseas rise, the price of oil is only going to plunge further. At this point I'd hate to speculate where the floor might be, but some analysts think it could be as low as $25 per barrel over the winter.

What would such cheap oil mean for the economy? Well, assuming it does make it to such low levels in the first place, it would mean mass layoffs at oilfields around America. Shale oil ceases being profitable at $40 per barrel according to some estimates, and for it to dip any lower than that would mean death for some companies who are struggling to hold on.

Keep your eyes on the commodities market, and on oil in general. They're a good indication of how strong the US economy is relative to the rest of the world. Falling import prices and rising export prices mean that the US dollar is strong. And a strong dollar has been good for people in the past.
Published on Aug 13, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2020. Content published with author's permission.

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