The Dow finished 268 points lower today down after the Organization of Petroleum Exporting Countries (OPEC) cut its estimates for crude oil demand in 2015. This is partly due to the North American oil glut and fears of lackluster Chinese and Japanese demand. In any event, OPEC now estimates that it will need to produce just 28.9 million barrels of crude oil a day next year. This is the lowest level in 11 years. Even when faced with this surplus, Saudi Arabia and other OPEC members refuse to cut production. So Brent crude, the global standard for oil prices, fell to $63.56 per barrel. Crude oil prices are now at a five-year low.
For obvious reasons, plunging oil prices have weighed on energy stocks. Unfortunately it has also had a ripple effect on related industries, like sand companies that supply the fracking industry and rail-related companies that transport oil. There were reports that energy producers would try to extract discounts from their suppliers and transpiration companies, but that simply wasn’t true.
As natural gas prices plunged, energy companies have not demanded that the sand and pipeline companies cut their rates. The rail companies may lower their rates for transporting crude oil and ethanol on trains, but that is only because diesel fuel prices have fallen. So I expect a nice rebound this week in the sand, rail and energy infrastructure companies that have traditionally been immune to price swings in crude oil and natural gas.
What we also need to remember is the energy boom in the U.S. is far from over. All of the projects for 2015 have been largely approved. Plus, the energy industry is accustomed to dramatic price swings and tends to keep their heads down and keep drilling. So, just as low natural gas prices did not derail the energy industry, I do not expect that seasonally low crude oil prices to derail the domestic energy industry either. In the spring, seasonal demand for crude oil will pick up and then we should have a better idea of where crude oil prices will stabilize. In the meantime, the drop in energy prices is effectively like a big tax cut for U.S. consumers, which should help further stimulate economic growth in the U.S.
So amidst this market choppiness, there are opportunities. In the coming weeks I’ll be pointing you towards some of those opportunities, as well as offering my market predictions for 2015.