Updated: Dec 3, 2019
Wherever there is blood, there is oil. The stock market has been bleeding due to the throttling supply of crude oil. The value of the S&P 500 has been inexplicably correlated to the price of crude oil. The marriage between the market index and the commodity has proven detrimental to market values. The price of oil has drained below levels of insolvency for most new entrants into the domestic oil production industry.
The consolidation of these companies is an equitable opportunistic strategy for commodity, growth, and asset-based investors looking to ride the shift from demand to supply-side economics. Owners of oil tankers and other storage facilities will be in high order for the remainder of 2016. Withholding crude supply to re-balance the price of oil to more sustainable levels for domestic manufacturing is a similar strategy of DeBeers to ensure that diamonds and their value last forever.
Oil is a global commodity that is shared, spilled and fought over, which the value of it just fell through the floor and the oil companies are trying to take everyone down with them.
Profit margins, along with demand for oil companies, has been descending for the past six years at a slope of 25% annually.
How does the correlation of a commodity to the overall market have such a massive impact on individual companies? Especially companies that benefit from lower oil costs, such as airlines, automakers, polymer manufactures, although most importantly, individual consumers.
Lower oil is good for the global economy. Reducing the cost of energy should be a national security effort designed to mitigate dependency on foreign nations for power. Tackling the socioeconomic challenge to achieve energy neutrality will be the most opportunistic venture of human existence.
The dependency of "fossil fuel" is just that, a fossil concept of energy generation that must be reformed. It will require pioneers like Tesla to tear the power from the good ole oil boys and put it in the hands of individuals with innovations such as Tesla's Powerwall. Social reform will be an effect of new competition for electric machines and battery storage that reduces demand for carbon-based fuels.
Oil should be compared to the price of diamonds as it is a false allocation of supply that retains values at certain levels due to controlled disbursements of amount into the market. During the fracking boom of 2013-15, many new entrants to the market opened massive channels of supply, which was when oil was hovering around $100/barrel.
The manufacturing of oil production was based on maintaining these values of $100/barrel. However, the greed of the industry blinded them to the elementary concept of supply and demand. We should keep our current levels of production and refinement to focus as an industry is to reduce the cost of oil production domestically and the dependency of foreign oil.
However, it is a means for large oil tycoons to allow new entrants into the market at a high price of $100/barrel, only to throttle their reserve supply to lower the cost of the commodity to force small new entrants to positions of insolvency. We are therefore allowing the oil giants to swoop in and acquire the battered new companies at a discount to then throttle supply to increase the cost of crude in their favor with more significant means of production and supply to compete with oil production internationally.
The whole system resembles that of the diamond industry. The value of diamonds is only worth what its suppliers say they are worth based on their throttled supply, just as oil is now a priced controlled commodity.