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Oil falls to 20-month low

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Oil prices are falling to 20-months lows as economies around the globe continue to slow and consumption of various products, mainly fossil fuels, continues to slow. Today's trading in the December, 2001 Light, Sweet Crude Oil futures contract (cl01z) shows that this contract has retraced 61.8% of its torrid rise beginning in early 1999 at $14.82 and peaking late last year at the $30 level.

December 2001 Light sweet Crude Oil -

Falling crude oil prices are welcome by consumers as relief for gas prices is often times a result. However, for equities that derive the bulk of their revenues from the production and sale of the commodity, the result of falling oil prices has put pressure on those stocks. Sectors under pressure today is the Oil Index (OIX.X) -2%, Oil Service (OSX.X) -3% and even the Natural Gas Index (XNG.X) -3%. Natural Gas prices have declined just as sharply as oil prices in the past several months.

Good news bad news

While the lower oil prices have had energy stocks under selling pressure in recent weeks and again today, the consumer in the U.S. and around the world doesn't mind them a bit. One of the fears of many economists had been for a stagflationary environment (no growth and higher prices), but the decline in energy prices has helped alleviate those fears.

Once economic conditions begin to improve and energy consumption begins to rise, keep an eye on crude oil. Sharp moves higher from a bottom in the commodity often take place just prior to economic stimulus.

Jeff Bailey
Senior Market Technician
Option Investor

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