With many friends, family, and investments in the energy sector, an interesting event recently occurred. While most Americans were feasting on Turkey, OPEC (Organizations of Petroleum Exporting Countries) announced they would continue pumping oil … even with prices in the 70’s per barrel, already down from the low $100’s.
OPEC continues to pump
We were not surprised by the decision, due to the following reasons:
- OPEC as a whole is less important and thus fending for themselves a bit
- Frequently countries continue to pump even as they are not supposed to
- With less importance for OPEC members, they are more protective of their economy
- Nice chance to push on levered US producers and maybe gain market share
Wall Street was very surprised, pushing market prices down into the $60’s!
While initially there will be pain, in the longer term, there are positives that come from a lower prices
- As producers cut production supply will go down
- Lower prices encourage expansive use
- Cleansing process of less efficient producers (too much easy money leads to reckless behavior … like mounds of debt)
- Better entry points for long-term investments (never catch the exact bottom)
One last item, we can all consider ourselves given a slight tax cut, possible at a very timely moment as filling up at the pump will leave a few extra greenbacks in our pockets for now. Especially handy as we enter the Holiday Season.
Have a Great Day!
John A. Kvale CFA, CFPhttp://www.jkfinancialinc.com http://www.street-cents.com 8222 Douglas Ave # 590 Dallas, TX 75225