WTI Oil fell below $100 on Friday on the back of economic worries in the US and Europe. That’s not to mention the CME Group Inc. (CME), the world’s largest futures exchange, raising futures margins for non-hedged positions to comply with new regulations. I don’t mind oil prices falling from this level (Brent at $128 hurts), I think that a lower price for oil is positive for the global economy as long as prices settle in a $90-$100 sweet spot where consumers and producers are happy. Right now, energy stocks are priced as if oil was trading at $60 or $70 a barrel which doesn’t make sense at all! but hey it’s a movie we’ve seen before not so long ago, last summer. Even if oil prices fall to the $80s the downside for high oil prices will morph into potential upside as supply and demand factors trigger price volatility from economic uncertainty to disruptions in supply in certain producing countries .
The price of Brent oil seems on its way to hit $100 a barrel as well, a level endorsed by Saudi Arabia, the top OPEC producer. OPEC is working hard in pumping enough oil to keep demand comfortably supplied as they do not wish to strangle the goose that lays their golden eggs. At the same time, OPEC will not sell its oil for cheap so the downside in my opinion is limited as long as Europe doesn’t meltdown this summer.
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Have a Great Weekend!