Payback

The world was supposed to end. The oil companies were all in cahoots. Oil prices only go one way, right? Well it didn’t work out that way.

Oil prices have fallen almost 20%. This implies that gas prices should fall to about $3.50 a gallon and heating oil to about $4. While that’s still above where they were last winter, it’s hardly the Energy Armageddon that many feared.

Why did oil come tumbling down? Inventories. When something’s priced too high, too much is produced and not enough is consumed–so inventories go up. The last couple of reports show inventories growing more than expected.

Now over the next couple of weeks market gurus will fret and fuss over whether lower oil prices are a good thing. After all, if they’re a sign that the economy is failing, that might be bad. Don’t worry. Lower oil prices are good. More money to consumers and lower energy prices are here just in time for winter.

The world has a funny way of not ending. Seeing oil prices come off their unsustainable highs just reinforces this truth.


Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T20:44:24+00:00 August 7th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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