What’s the deal with crude oil prices at the moment?

by admin on June 11, 2011

As I am sure you know you know crude oil prices have been all over the place recently. We had a high of $147 in July 2008 and a low of $33 in February 2009. At the time of writing this post the spot oil price is hovering around the $70 area.

Let’s take a quick look at a historical oil price graph.

 

Oil price chart

This chart shows the price of West Texas Intermediate or WTI crude oil. Prices have been volatile, haven’t they?

What affects on the stock market do oil prices have?

As with most commodities, when prices fluctuate there are winners and losers.

High oil prices tends to be favorable for the major oil companies like Exxon Mobil and Shell as their oil reserves will have a higher value.

When we have had exceptionally high oil prices in the past like in 1978 and 2008, there have been many casualties. Oil is significant cost for most business’ and the doubling and tripling of the oil price can put a massive strain on many industries including haulage, couriers, distribution.

When the price of oil is high, it can have a very broad inflationary affect as everything has to be distributed and that takes diesel!

The state of the economy

The current state of the global economy can play a major role in determining how oil prices affect the stock market.In the past when we have been in an economic boom cycle, the economy can often withstand higher oil costs.

However, in recession when the economy cannot withstand such high prices can deepen a recession and take longer to recover.

As oil prices are traded openly, they are ultimately controlled by supply and demand. However, as we have seen on occasions before, speculators can cause spikes that can be harmful to the economy.

We all feel it

There is no doubt the cost of oil affects most of us. High oil prices mean many large corporations will show lower profits (unless they have oil interests of course), food will cost more, gasoline and diesel will be more. The list is potentially endless.

{ 1 comment… read it below or add one }

Davaughn September 24, 2012 at 2:04 am

The fact is that day trade shorting has a sysimetc flaw in that the clearinghouse or whomever is in charge of watching a stocks float doesn’t have to track the liquidity of shares traded short vs float available to short until the end of the day, giving some slime bags the ability to sell short naked, more than is humanly possible because the float won’t allow for it. Therefore, there needs to be a circuit breaker and a real time monitoring system of the total amount shorted vs total float at any given moment for everyone to see. This amount should be published with the quotes so that everyone knows where they stand when they trade a stock. For example there could be the current float 5,617,433,211 vs short interest 1,628,133,080 and that should change real time every time someone goes short or buys back a short.It is high time that the marketplace became more efficient, transparent and monitored better in real time. I have working knowledge of the fact that something like this could be easily implemented. Let’s face it, wouldn’t you want to know when all of the legal shorting is over so that you could pile in long? For this to work, the entire float would have to be allowed to be shorted making this an efficient price discovery system as well. Also it would be a boon for brokers who make money in their stock loan department. In addition, this system would stop naked short selling which I believe is just mathematically wrong as there should never be more shares allowed to be traded in one direction and naked shorting allows for that absurd overselling thus allowing manipulation of a stocks price and should not be taken so lightly from regulators. Also loading up stock in a cash account, so that it can not be shorted has the opposite effect of driving a stock price up which is just as manipulative in my opinion. Trade only the float long or short and monitor it real time.If this wouldn’t work, please explain why? If you think it would work, spread it around before they over regulate everything so that true discovery of pricing will be eliminated by legislation arbitrage.legislation arbitrage creates a fake market price for all stocks. We all know what happens when falsity becomes reality, it is then only a matter of time until the house of cards collapses in on itself. This system would work fairly and would not allow naked shorting to manipulate, but rather would let the free market discover true price.

Reply

Leave a Comment

Previous post:

Next post: