Over the weekend, two major oil producing nations, Saudi Arabia and Russia, lost any semblance of diplomacy on discussions related to oil supply. With no finesse, the Saudi’s announced production increases and this led to a monumental drop in oil prices and the sheer magnitude and timing shocked financial markets. In the long run, market-based, non-contrived supply and demand factors will provide the most efficient means of providing balance and stability of oil prices, but in the short run, volatility in financial markets can be expected as winners and losers get sorted out (small, fracking type U.S. producers may be put out of business while gasoline buyers will benefit).
We do believe that markets will adjust and all things equal, lower energy prices versus higher energy prices are good for the economy. We expect this positive catalyst to prove helpful for financial markets. As a result, we are not adjusting our long term investment strategy.
All comments and suggestions are welcome.
Robert M. Bilkie, CFA