Welcome back for 2015. Things are looking pretty rosy for Sonoma County. We have had rain. This should remove some pressure on our Water Based Businesses. We have the announcement of single family home construction. This should ease some of the Real Estate problems with lack of inventory. We are at or near completion of significant transportation upgrades. The 101 build, the airport runway expansion and the SMART train are all done or nearly so. All of this is promising.
Today, I wanted to post about a more global issue and what is going on. This issue is prevalent in the stock market news over the last few days. The price of Oil.
There is a lot changing on both the supply side and the demand side here and that is what is causing the fluctuation in the market. Let me start with the supply side first. The US has become a net energy exporter over the last couple of years. This is not directly tied to Oil imports but somewhat indirectly so. Some of this comes from the expansion of alternate energy. Other parts from the growth in Natural Gas production. All of this has lead to somewhat increased availability of energy of all kinds.
On the demand side, the US has lowered its usage of energy relative to other kinds of growth. For some time, there was an actual reduction in the use of gasoline. Much of this had to do with the economy, but improved gas mileage is another factor. There has also been substitution of Natural Gas for Oil and Coal in Electricity production lowering greenhouse gas emissions as well as Oil requirements.
On the world stage, the lowering of demand by the US has not been picked up as expected by other Economies. This has led to some over supply in the Oil Markets. In the past, OPEC (Organization of Petroleum Exporting Countries) has lowered the supply to match these demand changes. In this case, OPEC has not changed production. The reason is that OPEC wants to drive some of these new productions (Shale Oil for example) out of business. OPEC figures it can hold out with lower prices more easily than some new producers can.
There is one other world concern and that is why the question of why other economies have not picked up the demand for Oil. This has led to the shaky stock markets over the last couple of days. The market watchers consider the lack of uptick in demand as a sign that the World Economy is weak.
What can you do about it? Not much personally in the short term. The one thing you can consider is being a contrarian from an investor standpoint. At some point, Energy Stocks will drop below what makes sense – even at low Oil prices. When you see that, you can invest and wait for the sector to recover. That is the way to Buy Low – find a sector with an issue and try to invest when that sector is down. Beyond that, keep your eyes and ears open to impacts on things like Russia and the Ukraine.
Have a great day!
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