On December 12, as I began to write this memo, the Financial Times provided several examples of the negative thinking being applied. Here are some excerpts from an article about the recent market action:
Oil prices fell sharply to a seven-year low, rattling stock markets at the end of a choppy week. . . . The price of Brent crude, the global energy benchmark, was down 5.6% to $37.49 . . . after Opec at its meeting a week ago failed to agree output cuts, leaving prices at the mercy of a global glut.
“Lower oil prices are here to stay.”
The CBOE Oil Vix is holding above the 54 level . . . as investors pay up to protect themselves [against], or speculate upon, further sharp moves in crude.
That all sounds very serious. But is it? Does it make any sense? What’s the real significance of declining oil prices?
The bottom line for me is that, if you aren’t an oil company or a net oil-producing country, low oil prices aren’t necessarily a bad thing. For net oil importers like the U.S., Europe, Japan and China, the drop we’ve seen in the price of oil is analogous to a multi-hundred-billion-dollar tax cut, adding to consumers’ disposable income. It can also increase an importer nation’s cost-competitiveness. "