Before I start off this article, I’d like to quickly review my trades from the last one. I said that you should buy both U.S. Silica and RCI Hospitality. Both are down substantially since I wrote my last article. This really doesn’t matter because I was strictly advising you to trade the stocks, not to buy them for the long run. The results from a traders perspective were spectacular yet again. SLCA went from $40 to $50 in 10 days. This represents a huge 25% gain. RICK went from $10.51 to $12.14 in 15 days. This was an amazing 16% profit. In the long-term I am negative on RCI Hospitality because of a lawsuit issue. I wrote about that here. I am still bullish on U.S. Silica for the long term. You can read more about that in an article that I will post tomorrow on seeking alpha. This article will not be providing you with a new trade; instead I will be discussing the latest collapse in oil prices.
If you have recently filled up your car, you may have noticed that the price you paid at the pump was significantly lower than what you were paying in the summer. If you are curious as to why this has happened and whether it will continue then read on!
There are actually many reasons for this huge decline. First I will list them and then I will explain them briefly. Production has increased in Libya and Iraq, QE ending has led to a stronger dollar, hydraulic fracking of shales in America has increased, and OPEC has refused to cut its production levels.
The Libyan rebels took over the oil fields and allowed them to re-open. The political uncertainty has stabilized enough for oil to resume production. In Iraq the fighting of the Islamic militants in the north has yet to effect southern oil production. With the ending of QE 3 the US dollar index has risen to $89 which is the highest level since March of 2009. Since oil is priced in dollars, oil has gone down when the dollar has increased. OPEC decided not to cut its production in its latest meeting which was on Thanksgiving. Even though high levels of supply has caused prices to plummet, the leaders stated that they wanted to maintain market share and not react to a quick change in prices. This will hurt Russia and American production. It is speculated by some that weakening Russia and hurting American fracking were the reasoning behind not cutting OPEC’s production. Finally the last reason behind the collapse in oil prices is that the fracking revolution in America has increased the supply of oil. Hydraulic fracking is the new process in which oil companies drill in shales such as the Eagle ford in Texas and the Bakken in the Dakotas. The process involves shooting water at oil rich rocks until they fracture which allows the oil to seep out.
The prices that you pay at the pump reflect the prices that oil is traded at about 2 weeks ago. Since oil prices have come down significantly in the past 2 weeks, I expect that you will be paying much less at the pump in the near future. This will be perfect timing for you to go out and buy Christmas gifts!!!! Thanks for reading. If you read this far then you should like my Facebook page!