- Stocks a bit lower on higher oil prices, but the response if fairly benign so far.
- Not everybody is so sure that the production will come back quickly…or that the situation will not escalate.
- The Transports (led by the rails) should get hit pretty hard.
- If oil prices stay elevated, it should help the energy stocks finally begin to outperform.
- Since the energy stocks are very under-owned, the rally could be very, very strong.
- The key resistance levels on the XLE energy ETF are the 200 DMA & the summer highs.
Stocks a bit lower on higher oil prices, but the response is fairly benign.
As you’ve all heard by now, crude oil is trading about 8%-10% higher on news that 5% of the global oil production has been shut down by the drone attacks on the Saudi oil fields. The reaction in other markets has actually not been very pronounced…as most global stock indexes (and the U.S. domestic futures) are only down about one half of one percent. Therefore, the global stock markets are pretty complacent about this development…and it seems like they think this is a problem that will only last a few days.
Listening to several experts on both crude oil and geopolitics, they don’t seem to quite as sure that this will be a one-off development. In fact, after saying that they could 1/3 to 1/2 of their production back on-line within days, Aramco is now saying this morning that they are “less optimistic on the pace of oil output recovery.”
Also, any belief that oil production can ramp back up quickly (and thus oil prices will drop back down) assumes that there are no further attacks…that the President (who is “locked and loaded”) does not respond militarily…and the situation does ...