Thursday’s ECB announcement from Mario Draghi gave everyone in the stock market continued hope – with 60b Euros of bond buying power, the stock markets both across the pond and here reacted positively. We’ll see even lower rates than already exist in Europe (even if German Bonds already have negative yields).
For the oil complex, the move had a predictable negative impact – a bigger than expected QE program from Europe sent the dollar again soaring, driving oil prices lower and with them, shares in oil companies.
We see another expected reaction to another of the 5 inputs to oil price that I isolated, four of which have no reason to turn around anytime soon. Oil prices will continue to lag under $60 a barrel, and most likely hover near $50 for the next 4-6 months.
So what the heck are we supposed to do? We know, as well as the CEOs in Davos, that oil prices under $60 are totally unsustainable and ridiculous – ridiculous in that 6-8 million barrels a day of oil production is unprofitable at that price. Given enough time, those barrels will come out of the supply chain, although the irony is of course that no company wants to be on the list of those that stop producing. Every single one of them is eyeing someone else while watching their cash flow disintegrate. Can I last longer than XYZ resources? They all ask.
And here’s where the first big opportunity must be for investors – in finding those who will sell assets,…