Monday, January 18, 2016

stock prices sink in a rising ocean of oil?


NYTimes |   “The glut is the 800-pound gorilla in the room,” said Steve McCoy, vice president for drilling contracts at Latshaw Drilling, an Oklahoma service company that prospered in recent years from the American shale boom. “The world simply produced too much, and now we have to use it up or many oil-producing countries and some oil companies may drown.”

Just a couple of years ago, producers and petro-states were making vast fortunes drilling and pumping relentlessly to fuel expanding middle classes in Asia, Latin America and Africa. But suddenly they are producing more than anyone needs at a time when China and other rapidly growing economies, once hungry for energy, are pulling back.

The extra oil has sent the price of crude into a tailspin, down more than 70 percent over the last 18 months.

That, in turn, has helped depress stock markets around the world, as investors worry about global growth. The Standard & Poor’s 500-stock index is off around 8 percent in just the first two weeks of the year; European shares are down even more. Chinese stocks have dropped 20 percent from their December peak, putting the market in bear territory.

“What was once viewed as a gift is now viewed similarly to the gift of the monkey’s paw,” said Tom Kloza, global head of energy analysis for Oil Price Information Service. “Global financial damages trump the benefits of cheap oil at anything under $30 a barrel.”

It could get worse.