Gushing Problems from Oil
Oil has gushed into the spotlight and become a major theme that will take us to year end and into the start of the next year. While prices started to slide mid-summer, declines have accelerated since September and took a strong leg downward last Thursday after OPEC decided to keep its production goals unchanged. What began as a conversation over the stronger U.S. dollar and declining global demand has taken on a variety of supply considerations, with a mixture of conspiracy theories thrown in for good measure. Since we love a good yarn like anyone else, our recent oil induced favorites include the thought that that the Saudi’s are helping U.S. efforts against Russia, as well as the idea of the Saudi’s desire to reverse recent gains made by the fracking sector. OPEC’s inability to squeeze even the tiniest of concessions from its members may support some of the conspiracy theories, but more likely points to the inability of its members to financially digest lower revenues, if only for the short term. Venezuela certainly fits into this category, and Russia, who is not technically an OPEC member, faces similar if not as dire financial straits. In any event, we continue to see the ramifications of lower oil prices that will continue to filter through the global economy and financial markets. While we think that lower oil prices will generally enhance the prospects for global growth, there will certainly be winners and losers, various data points may become skewed, at least temporarily, and the current flames of disinflationary concerns will certainly be fanned.