A Christmas Carol: Oil-Style

640px-Marley's_Ghost-John_Leech,_1843I was awakened the other night by the Ghost of Christmas Past. He brought me back to times when a gallon of gas was over $4 and it cost me around $75 to fill up my car. He reminded me how back then we didn’t yet have today’s fracking methods of obtaining what was hard-to-extract oil from our American land. He also reminded me that the demand for oil was much stronger then, thanks largely to China’s growing needs. He showed me how it wasn’t so bad in that a new alternative energy industry was born with innovative companies working on hybrids, electric cars, and other things.

Then – poof – he was gone.

I regained my composure and wondered if what had happened was really true or just a dream. But before long another Ghost appeared: The Ghost of Christmas Present (“TGOCP”). TGOCP took me to the nearest gas station where I saw people with big grins on their faces filling up their cars for an average of $2.51/gallon (according to AAA). He urged me to fill up my car, that same car, that used to cost $75 to fill in years past. Low and behold, it only cost me about $40. Wow! That’s $35 I can spend on something else, TGOCP told me, stuff like clothes, smartphone gadgets, to use at the movies, or to eat out. If you’re like me and fill up at least once per week, this extra dough really can make a difference. TGOCP told me that basically this drastic reduction in oil prices is essentially a bump in salary for most Americans as it leads to more fun ways to spend our discretionary incomes. He flew me over to the nearest Wal-Mart and I saw delighted shoppers spending this extra money on all kinds of things! Wow, I thought to myself, stocks of retailers like Wal-Mart and Target must be really benefitting from this…

I told him how great this was and asked him to show me more, which he did by taking me to Norway. Not so many happy faces there. He said that this crash in oil prices isn’t a win for everyone. He told me that the big losers in all of this are oil exporters like Norway for whom commodity exports are some 20% of GDP. And that the currencies of oil producing nations, like Russia and Nigeria, get whacked in times like these which leads to drastic measures like Russia raising its key interest rate to 17% from 10.5% after the ruble’s sharpest daily drop against the dollar in more than a decade. Then he flew me to Wall Street where he showed me how this destabilization makes traders very nervous with the thought that it could lead to political unrest. He reminded me that there is always the fear that weakness overseas can wind up hurting the US since we are now such a global economy. While at the NYSE, he pointed out the share prices for energy companies and how many of them had fallen big time. He also pointed out the drop in high-yield bond prices as many of the companies in that space are linked to energy.

Yikes, stocks and bonds falling?!? Wake me up from this nightmare! Then – poof – he was gone.

I got a grip and assured myself that all of this was a silly dream, only for the Ghost of Christmas Future to come walking through my bedroom door. He said something about Marley this or Jacob that, and then grabbed me and brought me to Washington D.C. where some future Federal Open Market Committee (“FOMC”) meeting was taking place. Not sure how far off in the future this was, but Janet Yellen was talking about raising interest rates yet again. She was saying how these low oil prices were helping the American consumer appetite and keeping our economy heated to the point that they could continue to raise rates. Ghost of Christmas Future chimed in saying that he and his buddy Marley had been traders before and they don’t like talk of Fed interest rate increases…

I awoke. This time for real. It was the morning of December 17, 2014 and the Fed was going to conclude its FOMC meeting that afternoon. I pondered if these revelations were anything to hold a candle to and I awaited this afternoon’s FOMC remarks….

Editor’s Note: Oil is definitely a hot topic now and will probably be for a long while. We’ll keep our clients informed where necessary. In the meantime, have an excellent Holiday season and try to get out and see the real Christmas Carol, a Detterbeck family tradition for many, many years.