I caught a snippet on CNBC this morning discussing the plunge in oil prices. The on-air personality recounted a conversation she had with an oil analyst. The oil analyst assured her that people should not panic because the current drop has not yet reached the depths of the financial crisis.
Oil is in the $80s now. During the financial crisis, it went from $140 to $33 -- hard to fathom, now, right? So, the reassurance is that oil has not yet gone into the $30s and that the time to panic will only come at some lower price.
My view is this: by the time oil gets to the $30s, the time to panic has long gone. At the same, there can be no reassurance in prices just because they have yet to reach some rock-bottom, panic level. If oil does manage to crash again, we should be thinking about buying, not panicking.
I am not sure what oil price is the right panic level, but I am pretty sure that panic never helped anyone succeed.
Source: FreeStockCharts.com
This monthly view of PowerShares DB Oil ETF (NYSE:DBO) suggests that the price of oil for the last five years has mainly been a lot of noise. Is the time to buy already upon us?
Note that the International Energy Agency is already “panicking” about oil prices. From Reuters today in “IEA sees 2015 oil demand growth much lower, supply hitting prices“:
“Demand for oil in 2015 will grow far slower than previously forecast as global economies remain weak, the International Energy Agency said on Tuesday, and prices may extend their sharp fall so long as OPEC shows no sign of countering a supply surge…
…Global oil supply rose by almost 910,000 bpd in September to 93.8 million bpd, almost 2.8 million bpd higher than the previous year.
In a rare IEA comment on OPEC’s strategy, its chief analyst Antoine Halff said the producer group may no longer be willing or able to adjust production as the market has been transformed by the U.S. shale oil revolution.”
Be careful out there!