Oil Price - The Consumer - The Stock Market

[shotgunner]

I am was not sure this was the correct forum, if not please forgive. My overall thought lately is how high can the price of oil go before the consumer is tapped out and the stock market adversly effected in a more serious way.

The phenom of high oil and gas prices at the conumer level is brand new starting to be really noticed in Jan/Feb time frame this year. That was the tail end of the heating season. Pain at the pump is all we hear and that all the consumer is dealing with at present. As we march toward fall and winter all of us will have to contend with the liklihood of $5 to $7 gallon gasoline and heating costs for our homes running 200% and greater for this coming winter.

I don't foresee a very good Christmas retail season, I see more companies than not who will see their profits decline. I think the market is going to continue to show a general decline until energy prices stabilize and better yet decline.

This seems to simple but the extradinary rise in oil prices seems to trump all other factors.

Given this, should any of us continue to keep any significant $ in equities at this time? I am not a market timer but at this present time the winds of resistance are blowing strong.

[tryan]

It's interesting when the voice of a nut-job in Iran can move the price of oil to new highs. Hard to imagine mid-east turmoil is still not priced into the market. Point being, speculators are looking for every conceivable reason to push prices higher.

Meanwhile SUVs sit in the driveway. People are eyeing wood/pellet stoves for the winter. If I didn't have my kaunas in a lock box, I'ld be shorting oil.

[ziggy29]

Originally Posted by shotgunner

Given this, should any of us continue to keep any significant $ in equities at this time? I am not a market timer but at this present time the winds of resistance are blowing strong.

My crystal ball isn't working well, but one thing I've learned over the years is that when this kind of fearful mentality is prevalent and pervasive, it's usually a good contrarian signal the indicate the worst is already behind us.

No guarantees, of course, but investor sentiment tends to be a lagging indicator of what has already happened, and also a contrarian indicator.

[CitricAcid]

Originally Posted by ziggy29

My crystal ball isn't working well, but one thing I've learned over the years is that when this kind of fearful mentality is prevalent and pervasive, it's usually a good contrarian signal the indicate the worst is already behind us.

No guarantees, of course, but investor sentiment tends to be a lagging indicator of what has already happened, and also a contrarian indicator.

Exactly, the market moves to predict the future, in the sense that Starbucks cut a ton of jobs today but got a sizable bounce. The price of oil has been predicted from the past and perhaps it is already priced in, seems the sentiment is always a good 6-12 months behind the actual movements.

The International Energy Agency has shifted its estimate of oil consumption in the U.S. from 88.27 to 86.87 million barrels a day simply because of the effect of prices. That is 1.4 million barrels a day less than what had been expected and if the shift continues into the future, perhaps 5 years down the road we will be about 15% less than we had initially predicted, producing a leverage against the increase in prices.

[HFWR]

Perhaps invest in makers of compact fluorescents, solar panels, wind turbines, insulation, hankies...

[Midpack]

Originally Posted by shotgunner

Given this, should any of us continue to keep any significant $ in equities at this time? I am not a market timer but at this present time the winds of resistance are blowing strong.

So you're thinking about moving your $ to cash and/or bonds? And then what is the long-term plan?

Right or wrong, I read the situation a little differently. Short term it will be ugly, but this isn't the first time, nor will it be the last. Long term, I believe that there could well be a major shift, based on all the reasons you give.

But that means there will be new winners along with the losers you're envisioning. Calculators replaced slide rules, cars replaced horses, cell phones are replacing land lines, etc. There will still be cars (small, hybrid, electric, etc.) for the foreseeable future, but companies that produce more fuel efficient models will prevail over those who can't adapt. People still have to live somewhere, but suburbs may languish while more urban locations do better. And the USA's conspicuous consumption might finally fall out of favor --- long overdue, good riddance IMHO. If you can pick these trends correctly you will do very well, but I think about 1-2% of the population is willing and able to do so (based on W Buffett estimate) - frankly I don't believe I can do it. If you're diversified, hopefully your winners will offset your losers. But who knows...

[d]

it's too easy to be pessimistic. the immediate future might be somewhat bleak (a buying opportunity ?), but my sense, and i might very well be wrong, is that things will turn out okay.

[eridanus]

Originally Posted by CitricAcid

The International Energy Agency has shifted its estimate of oil consumption in the U.S. from 88.27 to 86.87 million barrels a day simply because of the effect of prices.

US oil consumption is ~20MM/day. I assume the 86.87MM is worldwide?

[Zathras]

I believe it is. The good news is consumption (at those numbers) has almost come down to the expected production

[Ronnieboy]

A recent article in Kiplinger's (I believe) has oil executives stating that oil 'should be' priced around $60/barrel based on production and supply, yet it is going for 2.5 times that. What happens when/if it really drops to that?

[Zathras]

SUV sales pick up again, and investment in alternative fuels drops off and we get hit really hard when supply does drop off.
However, oil executives are also the ones that said oil will never reach $100
They are in Spin PR mode. Supply is just barely meeting demand (worldwide). As such, anything that impacts production sends prices swinging wildly as there is no real capacity left.
If OPEC could PROVE that they have lots of spare capacity by either producing another 3 million bpd or opening their reserves for inspection by a third party that would settle things down nicely.

[CitricAcid]

Originally Posted by eridanus

US oil consumption is ~20MM/day. I assume the 86.87MM is worldwide?

That is correct, it IS the International Environmental Agency, so don't know why I would say they were reporting on U.S. figures. Just a mistype/oversight heh