The selling pressure across markets overnight is a tide that is sinking all boats, including oil and all commodities for that matter. If it can be sold, it is being sold, right now. In terms of oil, specifically, support levels that traders have looked to determine prices bottoms have been taken out in succession, over the past several months.
At this point, if the $60 level is breached, the next downside price target for crude oil would be $49.90, which is the low price set on January 18, 2007 – a level that appears entirely possible, as things stand.
As the saying goes, things look darkest before the dawn. The across-the-board declines in asset values are endemic of a global slowdown of significant proportions. For energy traders, this translates into a real demand slowdown for refined products, such as gasoline, diesel fuel, and jet fuel.
Earlier today, OPEC went ahead with a modest production cut of 1.5 million barrels per day, with, as expected, Saudi Arabia carrying the bulk of the load. Despite this cut, the cartel did not throw the global economy completely under the bus. While there is talk of a December meeting, where further cuts could be announced, a scheme to progressively cut upwards of 3 million barrels per day was not announced, which would have exacerbated the negative sentiment gripping the markets.
In overnight trading, I am seeing the energy stocks down on a magnitude similar to equity futures, and they are proving not to be a place to hide out; however, they will be worth a look, today, as the depths of the sell-off emerge. ExxonMobil,Chevron,Apache, and EOGResources are among the names worth considering, especially given the fundamental fact that energy demand will be merely lessened, not obliterated.
Investors should note that these lower commodity prices are incredibly stimulative to consumers and manufacturers, as prices along the supply chain can be lowered. This disinflation will give the central bankers, especially the European Central Bank, the cover they need to aggressively lower rates.
- Oil Falls Below $65; OPEC Cut Fails to Halt Slide
The overall situation is bigger than the commodity markets, but falling commodity prices are a positive note in this crisis. The fall in gold price is especially heartening because it is defying some basic laws of economics. The actions of the Federal Reserve and others would normally be viewed by gold bugs as inflationary, and for a time, gold rose as a result. Clearly, the conclusion now is that the various steps are very much needed, so we can fear not over the consequences of firing the currency printing press.
One final bit of good news: consumers will see sub-$2.00 gasoline, diesel fuels prices will continue their plummet, and home heating oil prices are likely to be lower this year than last year. There will be more in the pockets of consumers.
Presently, energy prices are part of the solution, not the problem. I have not been able to say that for a long time.
John P. Kilduff Senior Vice President Of Energy at MF Global Ltd. He's also a CNBC contributor.