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Oil is hovering around $80 a barrel, from the high of about $105 a barrel not too long ago. Most analysts feel that oil is down temporarily, with the possibility of it bouncing back up in a couple of months.  We don’t think so.  We believe it’s a structural change, due to better technology. Not only does fracking take place here in the US, it’s taking place throughout the world. The result is increasing supply. It seems we finally broke the backs of OPEC and other Arab nations, who hung onto this monopoly for so long.  If we are able to continue to increase supply, it becomes very obvious what that can do to prices.
Now, the other side of any equation is demand. We talk about supply and demand quite often, but the demand for oil and gas has gone down over recent years, thanks to hybrids and other types of cars that don’t use petro fuels. We also continue to get reports that global demand is down, as Europe and Asian economies are stalling. We will watch this very closely, because we know oil is very speculative. Yet, we believe the market looking at lower prices for oil is only a temporary “blip.”
Think about it.  It’s as if the government is sending the American people a check each week, in the form of a stimulus for the overall economy. This will have a compounding effect. The longer oil stays down, the more confidence consumers will have. As it currently stands, the market views lower oil prices as temporary, and therefore, people may not be as confident. However, if oil stays down longer, consumers will have a lot more discretionary money.  For instance, I recently heard a friend filled up his SUV for $55 when it normally would cost him about $80. Think about that for a minute, he was filling up twice a week, with one car in the family. Then multiply that over many different families and households – you get the picture.
It is also very convenient, with the troubles we have around the world — the biggest losers for oil is Russia, ISIS and OPEC. None of these countries/groups are our friends, so aside from the normal supply and demand, there also may be some other orchestrations going on. However, low oil is extremely beneficial to Europe.
One of the biggest concerns we had in October was a slowdown in Europe and the EU (their Fed), being “behind the curve.” Said another way, the EU was not going to put any teeth into quantitative easing.
We think that everybody recognizes that oil is low, but we believe that oil is going to stay low for a while and this would be a big boom for companies. Think about transportation companies; now their cost of operations are lower. We’ve already seen a lot of airline stocks go up in price; perhaps a reflection of lower operating costs thanks to low oil. In almost every product you can imagine, there is some type of oil component; the shoes you wear, the vehicle you drive, when a producer sends something by truck from a factory to the retail center. Taking all of these things and more into consideration, it isn’t hard to imagine that with the lower the cost of oil, there is going to be a huge stimulus; making oil the big story of 2015.

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