By Zach Scheidt
Yesterday, I shared with you part one in my three-part series, “Why the Bull Market Isn’t Over.”
In it I explained how the record unemployment numbers we’ve been seeing recently and how this sets off a chain reaction through the economy.
Today, I want to talk about the second theme underlying this bull market, which is why I believe the bull market still has legs…
The second big theme shaping today’s economy is the robust energy market.
For the last twelve months, the price of oil has been marching steadily higher. Today, oil in the U.S. trades above $70 per barrel. And it’s even higher in Europe (where production is a bit more constrained).
Now the strong oil market is a conundrum for some economists. Because the U.S. is producing so much oil. We’re literally hitting record amounts of oil pulled out of the ground, to the point where we don’t have enough pipelines to pump all of that oil to refineries.
It’s a good problem to have, but a problem nonetheless!
So in an environment where we’re producing oil at a record level, why would prices be high? Usually when you have too much of something, the price goes down…
Well the answer is that we have so much demand for oil, that it almost doesn’t matter how much we produce.
Americans are driving cars and taking flights for vacations. Truckers are shipping products from manufacturing plants to consumers. Around the world, the growing global economy is thirsty for fuel. And all of this demand is driving the price of oil higher.
This is a great indicator of how well our economy is doing.
Because if it weren’t for a strong economy and healthy demand for fuel, the high level of production would cause prices to drop. Think of this like an indicator flashing green. The high price of oil is showing us that our economy is very strong.
Lately, there have been a lot of headlines about decisions that OPEC and Russia are making to try to increase production and sell more oil into this strong global energy market. For a short time, oil prices pulled back this summer.
But that pullback is now almost completely reversed.
And one of the main reasons why is because Saudi Arabia, OPEC, and Russia aren’t the key players in the oil market anymore.
Thanks to advances in fracking techniques, U.S. oil companies have been able to tap into shale deposits that used to be too hard and too expensive to get to. But new technology advances have made it cheap and very profitable to access this oil.
And now, the U.S. is the primary driver of the global oil market. So it matters less and less what Saudi Arabia or other Middle East countries do. This has definitely been a major shift of power, both economically and politically!
We’ll continue to talk more about some of the ways you can profit from this macro trend in the coming days. But for now, just know that the U.S. is now the dominant energy power in the world. And that’s great news for our economy.
Theme II: A Robust Energy Market
Here’s to growing and protecting your wealth!
From:: Daily Reckoning