Oil prices – why do they weigh on the market?

Mark Gordon

Maybe I am naïve, or just a contrarian. The first thing I do in the morning is turn on the news and business channel, and one thing I continually hear is that lower oil prices overnight will “weigh” on our market that day. Why? Lower oil prices will impact negatively on certain sectors – i.e. oil and energy producers, but I would think that a lower oil price is positive for the economy and market as a whole. Commentary gives the impression that the oil price is mainly demand driven in reaction to economic conditions – it is not – it is supply driven by a cartel and others to protect their best interests, with prices often changing around speculation of what the cartel is going to with regards to production. If supply was cut by the cartel I would understand the market to fall in reaction to higher prices (look at the 1970’s oil shock), but why short term market falls in reaction to lower prices? Don’t blindly follow the herd!


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