| MARKET ROUNDUP | |
| Dow | -51.44 to 17,776.80 |
| S&P 500 | -14.12 to 2,053.44 |
| Nasdaq | -64.28 to 4,727.35 |
| 10-YR Yield | +0.02 to 2.218% |
| Gold | +$37 to 1,212.50 |
| Crude Oil | +$3.30 to $69.58 |
Mike Larson is off today. His column will return tomorrow. Mark Najarian, managing editor of Money and Markets, is filling in.
Down, Down, Down.
That seemed to be the theme this morning upon our return from the Thanksgiving holiday. The main declines came from oil prices, retail sales and energy stocks. But the news isn’t necessarily bad.
First, for oil: OPEC on Thanksgiving Day bowed to pressure from Saudi Arabia and maintained oil production at current levels, driving oil prices sharply lower last week before this afternoon’s rebound. That recovery might comfort some OPEC members who are pushing to reduce output to help support prices, which had fallen more than 30 percent before the meeting.
So have we hit the bottom, or can it reverse and go even lower? Politics and economics play key roles in the price of oil, of course. The Saudis want it to continue to drop, hoping that will help stymie development of shale production. Cheaply produced shale, particularly in the U.S. through the fracking process, will cut the reliance on OPEC oil. By keeping production high and prices low, it will make fracking less lucrative and slow its growth, they hope.
On the other hand, many oil-producing countries need the income from their oil industries and need higher prices. So there’s no guarantee the Saudi strategy will hold, as other producers will step up pressure on the Saudis to allow production cuts to support prices.
Here are two lists that help put oil prices in perspective.
First – the breakeven production point for various countries and regions, as reported by CNBC this morning:
–Saudi Arabia: Less than $10 a barrel.
–Russia: (onshore) $40-$60.
–Venezuela: Less than $30.
–Nigeria: $20-$40.
–North Dakota: (Bakken Shale) $40-$70.
–Texas (Permian): $40-$80.
–Texas (Eagle Ford) $40-$70.
–Alaska: Less than $40.
–Canada (Oil Sands): $50-$100.
But that’s not the entire story. The following chart shows what oil price a country actually needs to get a balanced budget for 2014, according to Deutsche Bank:
According to Mandeep Rai, editor of Top Stocks Under $10 and a keen observer of the oil sector, the drop in prices won’t immediately end U.S. production. Most domestic producers’ budgets have been set for next year. Wells are pumping and making money for companies, so they won’t be turned off suddenly. But the question is whether investment in new rigs will go forward or be curtailed.
Basically, we’re looking at a standoff. Who can handle lower prices longer: OPEC governments or U.S. companies?
“In the end, by keeping production at 30 million barrels/day, the Saudis were able to keep the pressure on U.S. output,” Rai said. “That will lead to a curbing of new U.S. production, but we will need a lot lower prices for a longer period before U.S. companies shut down existing production.”
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| Will lower oil prices stymie growth in the fracking industry? |
How does that affect investors? “For (energy company) shareholders there will be stock-price pain in the interim,” Rai added. “However, in the medium to longer term, I think political ramifications in countries with growing deficits could put more pressure to support production cuts. My money is on continued development of the U.S. energy sector.”
Already there are some signs of that today, with the bounce-back in oil and gold prices and energy stocks, indicating that some of the panic selling might have been overdone.
Meanwhile, all the hype regarding Thanksgiving retail sales might have been overdone as well. In-store and online sales fell 11 percent to $50.9 billion, according to figures from the National Retail Federation. It seems the extended hours, with some big stores opening on Thanksgiving Day itself, actually diluted the effect of the traditional Black Friday start to the holiday buying season (see readers responses below). Online shopping failed to completely compensate for the lack of in-store buying.
The retail group said that some 133.7 million people shopped or planned to shop at stores or online over the four-day weekend, down 5.2 percent from last year. Shoppers spent an average of $380.95 over the four days, down 6.4 percent.
The take-away from all this? Look for fewer stores to open on Thanksgiving Day next year, and for Black Friday hours to move back to the more-traditional opening times.
What’s your take? Will falling oil prices be bad for the Western economies in the long run if it prevents the development of alternative energy sources? Here’s something that might not sound popular at first, but can we (should we) use the lower prices to boost our budget by raising gasoline taxes, which wouldn’t be felt as much now that gas is below $3 a gallon? Do you feel like you have more money to spend with the lower gas prices? Click here to add your viewpoint. There is also another worrisome issue related to the fall in oil prices — read Jon Markman’s morning column tomorrow for that story.
| Our Readers Speak |
Our column last week on the trend for opening stores on Thanksgiving Day and the extended hours over the weekend brought in a rush of responses, perhaps getting a better reaction than the holiday sales themselves, if the sales numbers are any indication.
The main view expressed by our readers appears to be that many of you didn’t plan to shop on Thanksgiving or Black Friday and were in fact against the extended hours, preferring to allow workers (and shoppers) to spend time at home with family. However, although most respondents opposed the store-openings, they mainly said it wasn’t for government to regulate the hours, as it does in some countries, but to allow market forces to set the course.
For instance, Reader Bob L said: “Let the free market decide store hours. There is no better system than the free market to tell you when to stay open if you’re a business. If your business decides to stay open and people don’t come to shop, then you will be changing your hours, won’t you?”
Reader Billy had a similar view: “I don’t ever remember myself or any member of our family ever shopping ON Thanksgiving and I don’t see that changing. It’s as though the business retail elite have really run right over this very important holiday….While I would still allow the stores the decision of whether to open or not..I would STRONGLY, STRONGLY recommend that people refrain from retail shopping on Thanksgiving and use that precious time to spend with family and friends and be thankful for what we have in this country.”
Myself? I avoided the stores over the holiday weekend. It wasn’t to make a political statement or even an economic decision. It was to avoid the mad-house shopping frenzy that I had expected. However, many reports are indicating that it was a calm opening to the holiday selling season. With the extended hours and prospects for bargains to continue through Christmas, many people no longer felt the need to rush out and scramble among the crowds to buy during the Thanksgiving break.
The matter is not settled, of course. There will be discussions about opening hours as Christmas nears. How did things go for you during the Thanksgiving break in regard to shopping (or not shopping)? Click here to join the conversation.
| Other Developments of the Day |
For the first time ever, Girl Scout cookies will be sold online. In the past, the organization has preferred the door-to-door selling method, believing that it helps teach valuable social and entrepreneurial skills to young scouts. Now, it says that there are important skills to be learned as well using technology. “(This) will also allow customers to help girls learn 21st-century skills grounded in technology, along with valuable interpersonal skills girls will acquire through their continued participation in traditional booth and door-to-door sales,” the organization said. Scouts will customize web pages, using their first names only, and email prospective customers with links to click on for orders. The websites will not be accessible without an email invitation, requiring the girls to build client lists. And personal information will be protected, for both the scouts and customers, using encryption in some cases.
Remember — you can click here to comment on these or any other issues.
Until next time,
Mark Najarian
{ 29 comments }
What the US should be doing with the low oil prices is to buy for our strategic reserves. Think “save money” while the price is low. Be sure we are buying US oil, not foreign!
Ultimately, all products have to be trucked to their final destination, even those purchased on-line (arguably even more so).
Lower gasoline prices will lower all product prices by a certain degree, as well as leaving more money in consumer pockets to buy those goods.
Bottom line, the economy will benefit and create more jobs.
Don’t let the gov’t steal your money by raising taxes!
the whole point of domestic production is to get off middle east strong hold on us they enjoyed for so long , I say keep drilling . Saudi’s have to understand partys almost over.
The savings on gas is being spent on increased cost of electricity caused by the colder weather.
Absolutely raise the gasoline tax to rebuild the roads and bridges. It will help push oil prices drown further by reducing demand slightly and our economy will still be stimulated by prices that are down over a dollar. One caveat: the money must be spent on improving roads and not siphoned off for other government programs including rail.
Raise taxes WTF ? You gotta be a person who’s job depends on road and bridge work for employment.
Our country needs ALL TAXES REDUCED PERIOD!
The Feds – The State Governments – Local Governments – IRS – all taxing entity’s are increasing their thievery of Joe TaxPayer and Joe is broke. All them high government wages , outrageous benefits , big retirement pensions etc can no longer be sustained. The Federal Government is totally Broke – many states are upside down – ie more money owed than monies coming in. And the robbing from other solvent states to pay the debt of broke ass states is going to end and then what ?
Never would a sane person say raise taxes unless of course you suck from the Goberment Teat or are an illegal waiting to get your food stamp card , ss benefits , health benefits etc .
Raise gas taxes? No thanks. That beast needs to be on a diet. Figure out how gas taxes already collected have been blown.
Why in the Sam Hill would you want to raise any TAXES? The government will only spend the extra money on more give aways. If you want to see the economy boom lower taxes. Read about the Fair Tax. Why keep buying oil from countries that hate us and openly want to destroy the USA.
I TOTALLY agree with the DOC…….raise taxes for what!!!??? They would NEVER go back down when prices rise, the gubmint would waste the money on illegal aliens……bottom line……we would be stuck with another forever high tax forever. Geez. How on earth do people always pull these “RAISE OUR TAXES” IDEAS out of thin air. We are taxed to death already!!
Looking at a WTI chart….i think oil will bottom at $61 and change……at then a nice rally.
No matter what happens raising taxes is NEVER a good idea for a short term issue. What happens when the issue moderates? Will (fuel) taxes be rolled back? I’ve never heard of such a thing.
In addition… plagiarized from another source:
A range of government authorities share in the tax revenue from the gasoline consumers buy. To start, there’s the federal gasoline tax of 18.4 cents per gallon. A variety of state and local sales and excise taxes help boost the price as well. All told, American motorists pay an average of nearly 50 cents per gallon in taxes every time they fill up.
Looking at it this way, the author concludes that “government makes far more from gas sales than all of the oil companies put together.†ExxonMobil, for instance, earned just 8 cents on each gallon of gasoline and refined products sold in the U.S. during the first two quarters of 2012.
Yet our infrastructure (roads) seems to be the last thing maintained with the revenue.
We should not have pothole infested roadway in the entire country!
While everyone is worried what oil is doing ….are you concerned what LYB is doing? This stock was recommended by Weiss himself just a couple of weeks ago….in the last two sessions it has dropped more than 14%! What do you suggest?
if you haven’t realized it before now, he is a scam artist. Get a refund fast.
I guess the U.S. would need oil priced @ $1000 to balance it’s budjet.
I think we (USA) ought to combine our Islamic State (IS) and oil strategies.
IS is an immediate threat to many in the Middle East (Saudi Arabia, Syria, Iraq, Iran, Turkey, etc.) and the military consensus is that IS cannot be defeated by air power alone but requires an army (boots on the ground).
Likewise plunging oil prices are a threat to our (US and to some extent Canadian) oil producers. One might consider the Saudi action as an act of “price war†against the US. They are following an old strategy: Whenever the West, including the US, begins to take action to reduce our dependence on their oil they crash the price to make our efforts so uneconomic we back off. For example, when Americans began turning to small fuel efficient cars the oil price came down enough to get us to buy SUVs. I am an old guy and have seen them play this trick many times.
OK, to defeat IS the Middle East needs boots on the ground and since they still believe those will eventually be US boots, they themselves are doing little to nothing – the Kurds being a notable exception. And we need higher oil prices to keep our oil producers, especially the fracking guys, going.
The solution is to tell our “good friendsâ€, like the Saudis that we want:
• Them to commit their boots to a destroying IS, and
• An oil price of at least $85.00 / barrel (a guess on my part of a price high enough to keep our guys in business but still low enough to not harm our economy and recovery).
If they refuse to do these things, then we tell them:
• We refuse to fight you war for you so until you start doing your part (boots!) we refuse to make air strikes or provide any material assistance to the effort to subdue IS.
• We are immediately imposing an import tax on their oil (a “price war†can go both ways) the proceeds of which will fund a subsidy to our domestic producers. (That way, while we wait for demand and prices to return to normal levels our guys keep functioning – no bankruptcies, no layoffs means they keep their experience staff intact, and no shuttering or rigs means we are ready to increase production as needed at minimum new investment.
Postively ” Help everyone on Lower Gas Prices ” .. More to spend in other areas , Clothes”, Food ” , perhaps have other Funds to purchase Household Items , Car , with the Out rageous CAR prices “… people may have xtra Money to purchase a Preowned Vehicle , that they need badly !! Maybe even start a Savings ” …. People at the way Prices are on everything today , do not have anything xtra to start a Savings , and as far as i’m concerned thats outrageous ” So, ” Boo-Ya ” to keep the price of Oil DOWN ” !!!
I don’t see how falling oil prices could be bad for the Western economies in the long run. The difference in the price at the pump is money that was going to OPEC that can now stay in our own economy.
Lower prices will not prevent development of alternative energy sources; it might delay it until prices are higher, but that oil could still be fracked after we burn through cheap imported oil.
As far as raising the gas tax as you suggested… I am opposed to ANY measure to “boost our budgetâ€. We surely don’t need to increase the money we put into the hands of the politicians. But… if it were part of a broader tax code reform, I am all for upping the tax on gas. I would even suggest setting a minimum tax tied to a “base reference†price of oil, and then a dollar for dollar corresponding increase in the tax as the price of oil goes above that base price. (For example if the base tax was set on a reference price of $80/barrel, and the price goes to $90/barrel, the tax would also increase by $10/barrel.) We should then use the “excess” tax from higher prices to reduce the national debt. (Some of the increased tax might even be earmarked for alternate energy source development.)
Doubling the effect of price increases on consumption would give the OPEC’ers something more to think about when considering price increases, and using the price of oil as a weapon would have the effect of strengthening the US.
As a retiree on fixed income the relief at the pump means money available to dine out and purchase goods….an activity that helps create jobs and income for others. As for an increase in taxes there is too much money being WASTED now by the Federal Government. We need to reduce the size of federal government and get it off the backs of people. Our founders are probably rolling over in their grave due to the overreach of the federal government. Let’s get back to basics and eliminate all the redundant agencies as well as the department of energy which has done nothing to help us in all the years it has existed.
Great idea. Let’s prepare the seniors (I am one) to the 77% payout predicted in social security in 2030. We could eliminate any C/OLA’s until minimum wages are raised to start.
Why should a retired geezer get a C/OLA when hard working people haven’t seen their wages raised in five years?
Get used to less money seniors 77% is a hell of a slap!! Besides it’s a mere 15 years away, if you just retired at 62 it could be a problem if you;’re already 80 not so much.
Think Congress will rescue your ass, think again!
Do YOU really believe Saudi Arabia has your best interests in mind with “cheap oil” prices now? Where were they when oil hit $140 a barrel and gasoline topped $4.50 in my hood?
They were still pumping it out for $10?
It is merely a ploy to bankrupt the more expensive US producers. If we do nothing, these firms will limit production, exploration, and ultimately close. Sure, it feels good those low gas prices, right? How will it feel when there is no competition except the Saudi’s, Kuwaiti’s, and Venezuela? How will it feel when prices over-correct to the high side?
Ready for $6 a gallon gas, without a gas tax increase, crumbling roads, and Banks to match? Maybe you will be out of a job by then as well.
The “smart answer” is an import tax to increase the cost of domestically used fuel to roughly the $3 level per gallon. That normalizes prices for all, and offers some protection to our own producers.
Protection is Prevention of Chaos later. Think long term here.
Have never shopped on thanksgiving and never will……or black friday for that matter.
We stay home and have friends and family over. I manage a retail store and unfortunately
we were open with lowered staffing, sales were fairly good but nothing that justified opening early, I really wish I could have shut the doors and allowed all of my employees
that day off. Black Friday hours were unjustified also but they will continue the practice
just because everyone else does. They will see it as staying competitive.
No
Don’t even talk about raising taxes on gas. Never vote to raise taxes period. The out of touch politicians will waste the money and our “budget” won’t benefit. The clueless politicians will still keep increasing the national debt and new taxes on gas won’t even make a dent in the national debt. Also, our business (a service company which involves travel all over the state of Florida), almost bankrupted because of high gas prices. We’re finally seeing a little light at the end of a long dark tunnel. The economy will ultimately benefit from lower gas prices. Families will benefit from lower gas prices. Raising gas taxes will only hurt the country. Most of the price of a gallon of gas is taxes already anyway.
There is a need to raise gas taxes regardless of the price of gas. Our bridge and road infrastructures are falling apart. We need to figure out how to have Hybred cars pay their fair share. I would think the easiest way would be for the states to add a fee to the license plate cost and the extra money go to the road funds. I, for one, am tired of riding over poor roads. Don
Lower oil price will boost Xmas sales and travel. Good for the U.S. economy.
Are you crazy suggesting the Gov’t raise the taxes on gasoline? It’s a one wat street on taxes, always higher. Before you know it we’ll be paying the same rate as they do in England, which is equivalent to $6.00 per U.S. gallon.
It is real time to raise the tax from gasoline, because we got new energy
#1) Mike Larsen, From you watching the Stock Market & the Economy for years now,
in your Professional opinion, “Do you think there will be a Market CRASH in the next couple of years “????
#2) Do you think it would be ( Advisable for the Feds to raise the Interest Rates NOW rather than wait till the economy gets stronger here in the U.S.????
Thanks Mike for all of your Emails.
I don’t play this game- Ba Humbug!!!
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