Well, the trend in oil as yesterday's selloff left little doubt is down. How far down remains, like most of these affairs, anyone's guesswork. Hitting a 12 year low yesterday, the comparison birds flocked to get their reports to media. We're 12 days into the new year and the price of oil has dropped every day.
Three major investment banks, according to the WSJ, warned it could soon crash through $30 a barrel. That hardly at this point seems like a brave, brilliant forecast. It's Wall Street, Jake! The squeeze is on. Marginal companies that borrowed heavily to make a buck during the party now face a dilemma: borrow from their credit lines if they have any left or cut costs. Cutting jobs is a major means of cost cutting. So much for those recent doctored up job reports.
A third option is what's on the minds of investors every day: a growing list of bankruptcy filings. If one is savvy enough to separate the viable from the nonviable, there's most likely a tanker train of black gold riding there. There's another squeeze here many are apparently unaware of. Some firms are able even with these prices to make money owing their more efficient wells, a fact that helps keep the oil glut going.
Recently, a big player in the sector sold a hoard of shares in an over-subscribed offering to the public. And as always happens those with the resources will wait for more carnage to exercise an often forgotten market rule that's as old as markets.
When you're hurting, things are bleak, only fools and the naive pay your asking price. When you have to sell, vultures find their carrion. It's called nature or let nothing go to waste. Bankruptcies are at least in part for those with the resources about picking up assets on the cheap. They are also if left unimpeded by the regulatory crowd the market place allowing natural price discovery. So every cloud, as the saying goes, usually does have a silver lining for someone.
The trend is indeed your friend--until it isn't anymore.
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