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Why it’s a good thing oil prices are headed sharply lower

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

Today's headline is slightly tongue in cheek, but I continue to believe that the slide in crude prices is primarily the result of excess speculation in futures markets by impatient hedge funds.

Yes, fundamentals are involved in the form of rising U.S. shale production and sharp growth in U.S. oil exports that offsets OPEC production cuts. It also remains the case that there's been very little investment in new supply in recent years, and that shale wells have a very short productive lifespan.

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It's also true that an improving global economy is supporting expected growth in global crude demand by between 1.0 and 1.4 million barrels per day.

Obviously, all bets are off if demand slows, but if current patterns persist there will be a point – maybe five years out, maybe sooner – when supply is scarce and the commodity price jumps. For patient investors this could be a very profitable time to start dollar cost averaging into the sector, even if it hurts in the near term.

"Oil Bulls Exit Before Market Dive on Swollen U.S. Stockpiles" – Bloomberg
"Oil touches three-month lows, as U.S. supply swells" – Reuters
"@tracyalloway Those bullish oil bets were pretty darn bullish. Via BofAML:" – (chart) Twitter
"The second shale revolution" – Financial Times
"Canada's energy sector: 'Out of vogue' or buying opportunity?" – BNN


The Federal Reserve is expected to raise interest this week. That's reason for investor concern – equity markets reacted like a petulant child denied a cookie when chair Janet Yellen announced the hike in December – but it's reasonable to believe that this time markets have digested and already reacted to the near-certainty of higher rates.

I'm particularly interested in watching the price reaction of Canadian bond yields, the extent to which they follow U.S. yields higher, and how this affects domestic income-paying equity sectors.

"Why Fed's era of easy money is finally drawing to an end" – Upshot (New York Times)
"Fed, Economists and Investors Show Rare Harmony on Rate Outlook" – Bloomberg
"Fed and Markets Align Despite Looming Interest Rate Increase" – Wall Street Journal

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U.S. federal politics remain exhaustingly perverse, but signs of a strengthening American economy continue to appear,

"Companies in February added the most workers in seven months, and the hiring stretched across more industries. The Labor Department's so-called diffusion index, which measures the breadth of hiring in 261 private industries, climbed to a 14-month high of 63. It was also the second-highest since February 2015, helped by the biggest monthly jump in employment in goods-producing sectors in nearly 17 years, according to the agency's job report on Friday."

"Hiring in U.S. Hasn't Been This Broad-Based Since 2015: Chart" – Bloomberg


Tweet of the Day: "@patrickrooney .@WallStreetWeek "The stock market is a mechanism for transferring wealth from the impatient to the patient." @TonyRobbins " – Twitter

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Diversion: "This is what 'Jeopardy!' host Alex Trebek is really like" – Business Insider

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