This has been the most interesting year for oil for as long as I can remember. Talking with my parents, they say it’s hard to believe the incredible supple of oil available at this moment. When they were growing up, there was a quota on how much gas someone could get in a week. Now, the supple is so high prices are down to levels not seen in decades. Oil prices are now at a one month high after prices shot up 7% on Tuesday. Oil futures continue to rise, with Tuesday marking the fourth straight day of prices increases. This marks the longest winning streak for oil in six months. According to the article, “Tuesday’s rally came in response to a U.S. refinery strike, which pushed up prices for petroleum products on concerns that the refineries could shut down fuel production.” http://www.wsj.com/articles/oil-extends-rally-but-markets-cautious-over-rebound-1422944186. If fuel productions fell, this would lessen the supply of oil, leading to a surge in prices. While oil prices have been showing signs of recovering, I do not think we have seen the end to low prices. If one oil refinery decides to cut production, they could be undercut by one of their competitors. There needs to be some sort of assurance that all oil producers agree to cut production. I believe this may happen, but it will not lead to prices going back up to $100 dollars a barrel. I believe prices will increase, but gradually find a steady state well below this summers levels. While US oil producers want to cut production, there is still an over supply on the global level. This will not get solved easily it is nearly impossible to get all oil producing companies around the world to cut production and spending in 2015. Many oil producing companies are losing money and will cut spending in 2015. This will lead to layoffs and lessened production. It will be interesting to see how companies that have oil and a main factor of production react. Oil futures continue to rise, indicating companies are playing it safe. by buying at prices they believe will continue to rise. According to marketwatch, “Crude-oil futures rallied well above $50 a barrel to settle at their highest levels of 2015 Tuesday, as prices jumped on speculation that a sharp decline in U.S. drilling activity will result in supply declines.” http://www.marketwatch.com/story/oil-prices-continue-to-rise-as-investors-worry-about-supply-cuts-2015-02-03. This article also notes that they do not believe this decline in drilling will be enough to offset the global oversupply. On a worldwide scale, there is a surplus of 1.5 million barrels per day. This is remarkable and explains why prices are so low. It will be interesting to see if companies on a global scale follow the US’s lead and cut down on drilling and production in order to raise prices. With many economics struggling worldwide, I find it doubtful this will happen anytime soon. It will be interesting to see how it all plays out!
They are calling it the storm of the century. A once in a lifetime kind of snow storm. Some predictions have predicted north of 30 inches of snow hitting New York City. The biggest city in the United States and one of the most important in the world has the potential of being entirely shut down. “Officials prepared for the potentially historic blizzard by declaring states of emergency in at least seven states, including New York, New Jersey, Massachusetts and Connecticut.” http://www.wsj.com/articles/new-york-area-braces-for-blizzard-1422280336?mod=WSJ_hp_RightTopStories. Thousands of flights have been canceled, roads have been closed and citizens of these states are stocking up on supplies. A recent list describing items that every household should have in case of people not being able to leave there house was released. “You’re putting your life in your hands if you go out on the road,” said Alan Dunham, a meteorologist with the National Weather Service in Taunton, Mass. These disruptions seek to disrupt work and commerce throughout the region. Fortunately for industries that deal with the public markets, many people will probably still be able to trade stocks and bonds online, unless power outages are as bad as some people are predicting. Airlines seek to lose the most profit from this storm as thousands of flights from this region will be canceled and delayed, leading to confusion and lost revenue. With oil prices falling, so too have flight prices. However, many people will be stranded or have headaches with various airline over this two week span, leading to airline hatred. This past fall, I was in Milwaukee for an interview. I had my flight canceled because someone lit himself on fire at OHare International Airport in Chicago. While I was extremely upset, this was a very isolated incident and something that could not have been planned for. A month later, I was delayed at OHare and was told my delay was due to that man who set himself on fire! This storm could effect earnings in the airline industry for months. Southwest airlines has recently seen earnings increase due to falling oil prices. With oil not falling into perpetuity, airline companies need to take advantage of this. The winter storm could see this prime time for earnings increase before airline companies had a chance to take advantage of it. According to the article, “The sharp drop-off in oil prices has been generally favorable to airlines, making up for struggles late last year amid concerns about the Ebola outbreak, signs of global economic wobbles and worries that air carriers were adding too many seats on international flights.” http://www.wsj.com/articles/southwest-airlines-beats-estimates-on-falling-fuel-prices-1421935835. Other airlines such as Delta also reported higher earnings. Hopefully companies are able to continue to capture profit with these low profits. Air travel in the norm these days and with the world continuing to get smaller, airline travel will continue to be an important part of our future. Hopefully the drop in oil prices will lead to a fall in prices for consumers, leading to more travel (and spending) in 2015!