Tags: oil | crude | price | investing

When It Comes to Oil, Burning Question Is: How Low Will It Go?

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Tuesday, 16 Dec 2014 07:20 AM Current | Bio | Archive

West Texas Intermediate (WTI) crude oil has entered the $54-$55 per barrel zone while Brent crude oil slipped below the $60 per barrel mark.

The question now is will these price zones play their technical role of “resistance” zones or will oil prices continue their nearly uninterrupted slide and enter the zone of uncharted territory where the “oil price bottom” could literally fall out at any time, which doesn’t mean it “will.”

From my side I had calculated/expected we could (not “should”) expect such a from an investors’ standpoint “interesting” moment somewhere during the first half of 2015.

We’ll see if we’ll have to wait that long.

Anyway, there is no reason whatsoever to lose patience.

For long-term investors as well as speculators in oil and oil-related investments, “time” could become relatively short as everything depends on the speed of the oil price descent.

Yes, this is extremely important and certainly it isn’t a piece of cake because besides all that everybody will have to try to avoid falling into any kind of “herd” mentality trap.

I’d prefer to start considering to take positions in the broader oil game when “broad based pessimism” is taking hold and which could coincide with WTI entering the $40 per barrel zone - and then only use “cash” and avoid any form of leverage because I’m firmly convinced “we haven’t seen it all (!) yet.”

No, not by a long shot.

Meanwhile, in its just released December 2014 Financial Stability Report, the Bank of England states: “… Against the backdrop of increased market concerns over persistent weak nominal growth and geopolitical risk, recent developments could affect the outlook for financial stability in the United Kingdom if concerns about persistent low growth lead to a sudden reappraisal of underlying vulnerabilities in highly indebted economies. Risks may also arise if a shift in global risk appetite triggers sharp adjustments in financial markets, including funding markets for banks and corporates, and undermines business and household confidence. The recent sharp fall in the oil price should support global and UK growth, but it also entails some risk to financial stability ...”

I’d like to add here is what’s important to the UK and the Bank of England is important to financial stability of most if not all economies in the world, and therefore for all types of investors in the world.

Unfortunately, I feel obliged to add here I don’t expect 2015 to become a good year for emerging economies, which includes the corporates in these emerging economies that have substantial amounts of U.S. dollar denominated debt on their books.

If that’s the case, nasty surprises are in the offing, no doubt about that.

Yes, fireworks are coming, and unfortunately, I’m not talking about the Christmas Eve or New Year’s Eve fireworks.

Besides, also very few talk or even take into consideration at this moment any serious form of “oil price collapse contagion,” but I’m convinced when oil prices continue their descent as is at present the case, this will “hurt” in many important places, which doesn’t include, of course, most of the energy consumers all over the world under the condition their “income” allows them to consume a little bit more at a lower cost per unit consumed.

I think it is still better not to fool ourselves by thinking there isn’t or aren’t important shock(s?) to be taken into consideration for the coming year, and if such event(s) should happen, ask ourselves if our long-term portfolios are prepared/ready to take that on, and, why not, eventually improve their overall performance.

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HansParisis
For long-term investors as well as speculators in oil and oil-related investments, “time” could become relatively short as everything depends on the speed of the oil price descent.
oil, crude, price, investing
594
2014-20-16
Tuesday, 16 Dec 2014 07:20 AM
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