Monday, July 11, 2011
Oil: The Big Difference
This is the big difference from Summer 2008. Then the stock market tanked because of the begining recession, but the oil price climbed to $147, which sharpened it.
Many oil buyers (funds and other speculators) followed then a perverse argument: "Oil is an insurance against falling stock prices", they were told. Many believed this and bought oil when the stock price dropped - a self-fulfilling prophecy. This was perverse because the recession also lowered the demand for oil. In autumn and winter 2008 the oil price imploded then to around $40.
Now oil & stocks react almost in consort to the economic news: They both rise on goods news and simultaneous fall on bad news. Since May, the oil price has dropped on the financial markets from $114 to around $95. This is good for the economy because companies & consumers have now more money to buy goods. Falling oil prices since May have already reanimated consumer expenses. Last week many retailers reported strong sales growth for June, even though the job market stayed weak.