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Help me "GROK" why lower crude prices cause broad equity disruption to the downside.....

catch22catch22
edited June 2017 in Fund Discussions
First: to GROK
[Coined by Robert A. Heinlein in his Stranger in a Strange Land.]

grok (ɡrɒk)
vb
to understand completely and intuitively

>>> K. I understand weaker or weakening crude prices if demand is greatly reduced and/or if supply becomes excessive. I also understand why any given active managed fund or broad based index is affected in some downward pricing of the energy sector based upon the percentage of holdings relative to energy companies within the fund, index or etf.
During a vacation period in July of 2007, we paid the highest ever price for a gallon of gasoline in Michigan, at $4.25/gallon. While driving in the central part of the yesterday found prices around $2.15/gallon to be the normal. Relative to a recent addition of 7 cents/gallon of Michigan tax; the price is $2.08/gallon versus one year ago.

So, how and why do lower crude oil prices bother the broad equity markets? One may tv view or read articles to the aspect of, " U.S. Stocks Struggle To Pull Out Of Oil-Driven Selloff".
Is this "equity selloff or struggle" related to old habits of patterns from the past and the big players just can't throw off old habits OR are the big players just playing and/or finding an excuse to take profits?
Except for profits of energy related companies and potential layoffs of their employees, I am attempting to discover why lower energy prices are "bad for an economy".
OR, is the economy really in sad condition?

Help me understand !!!

An overview of the good and bad relative to cheap crude oil from a January, 2016 article.

http://www.nbcnews.com/business/markets/cheap-oil-good-consumers-so-why-it-slamming-stocks-n500696


Michigan gas prices from 2006 through 2017: One needs to select/choose the "11 year" tab above the graph.
http://www.michigangasprices.com/retail_price_chart.aspx

Thank you and regards,
Catch

Comments

  • TedTed
    edited June 2017
    @catch22: For your information, gas prices!
    Regards,
    Ted
    https://www.bespokepremium.com/think-big-blog/historically-weak-gas-prices/
  • TedTed
    @catch22: Sorry for stepping on your toes, moving your post to the top.
    Regards,
    Ted
  • 00BY
    It is the volatility that spooks the markets. And when the oil price is high, big oil companies each spend tens of billions a year in capex. With low prices, they cut their capex bugets. Energy touches every aspect of the economy.
  • LLJB
    According to Investopedia investopedia.com/ask/answers/030415/, both the Fed and the IMF have tested stocks and oil and found little correlation. While there are periods when one appears to lead the other, over time they are not connected in a predictable way.
  • sma3
    While it seems intuitive that lower oil prices would be good for the economy, it also indicates lower demand, confirming the undercurrent that no way are we looking at 3% GDP growth. While the Saudi/Russian attempt to raise prices has been largely blocked by increasing US shale oil production, both the flattening yield curve and the declining price of oil point to less robust demand ahead in all sectors. It would probably have had a bigger impact if the US was as oil dependent as we were in the 1970s

    good source of economic data

    https://blogs.wsj.com/dailyshot/2017/06/22/wsjs-daily-shot-us-shale-oil-output-to-hit-record-high-in-july/

    while i can't stand Murdock, and the WSJ is a shadow of it's former self an online subscription still pays for itself
  • LLJB
    I agree with your comments but I think you have to differentiate between a low price caused by less demand and a low price caused by excess supply. I believe the current price is and has been almost entirely about the latter. I'm not sure how much to rely on data that I found by googling world oil demand, but it looks like demand has been increasing pretty consistently since the credit crisis and the growth looks relatively consistent with history.

    Just a guess, but weak oil should generally mean a stronger dollar and that reduces the USD value of overseas profits at the same time it reduces demand for things priced in USD, like exports, so maybe that's part of the reason as well.
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