September 20, 2019

High for Stock Prices?

$66.19 

per barrel as of 4/25/19

Oil Hits 2019 High On Iran Sanctions

Oil surges on U.S. decision on Iran sanctions. Trump surprised the oil market on Monday, announcing that he would let U.S. sanctions waivers expire at the end of the month. The eight countries granted six-month waivers last year had hoped to obtain extensions, but the Trump administration has opted for “maximum pressure” on Iran. However, it may also mean maximum pressure on the oil market if Iran loses a significant portion of its oil exports. Oil surged by roughly 3 percent on Monday.

The Undeniable Signs Of A Shale Slowdown

However, U.S. shale is in a different situation. After spending heavily for years, which successfully ramped up production to record heights, many shale companies are still not performing well financially. As a result, the U.S. shale industry is at somewhat of an inflection point. Kibsgaard said that the sector is “set for lower investments with a likely downward adjustment to the current production growth outlook.”

Overall, though, even as U.S. shale basins continue to attract prodigious levels of investment, the blistering rate of growth seen in the past few years may be at an end.

Halliburton, another oilfield services giant, has yet to report its earnings, but it said in March that it expects North American oil producers to spend 10 percent less this year.

DYI:  After their blistering pace for shale oil/gas a slow down in the rate of growth for the fracker’s is expected.  As the world’s population grows so will the demand for oil and gas pushing up prices only to be interrupted by recessions and depressions making for a non stop roller coaster ride.

So goes the price of oil and gas…So goes world wide stock and corporate bond prices either up or down as hydrocarbons especially high prices above their mean will knock economies down along with security prices.  Here in the States being so car and truck dependent we’re sensitive to changes in prices.  We’ve been in a sweet spot with oil prices lower from five years ago placing more money into all of our citizen’s hands hence pushing the economy forward. However, this effect of lower prices only lasts for around five years.  After that it would be logical to expect stock/bond prices to either stand still or begin their retreat depending upon their respective valuation levels.  Using our five year window if oil prices stay at this level by December the lower oil/gas price cut will run out of gas with economic growth slowing or pushing the economy back into recession.

So here we are today with sky high valuations for stocks, bonds and real estate all alongside an economy that has been growing [slowly at best] since 2009 AND increasing energy prices.  Stocks, as measured by the S&P 500, have not made a new high since September 20, 2018.  It is my opinion September was the high for this cycle of stock prices.  So be aware despite DYI’s oil indicator flashing the all clear sign that five year window is only an estimation stock and corporate bond prices may have already begun their southward direction.

 DYI