Has OPEC Given the World the Greatest Christmas present ever?

     The decision by OPEC not to cut oil production was a complete shock to the energy markets and to yours truly. WTI was in a complete free fall as prices dropped over 10%, and would have continued if the market didn’t close for the week. It is now evident that OPEC has lost the ability to set and control world oil prices. I expect we will see some follow through as markets reopen on Sunday, but I believe the major move down is now behind us. Crude oil at $65 will surely cause some firms to curtail oil production and exploration, as extracting the black gold will become unprofitable. While this could cause some to lose jobs here in the US, the broader social implications around the world could be revolutionary. While production of oil in the Middle East is less expensive than in the US, the cost of the many social programs in those countries and the subsidies they provide for their people will cause many in those areas to suffer as cash reserves are spent at an increasingly rapid pace. It’s a dangerous game that OPEC has started and the fallout from low oil prices will be felt immediately. Most Arab nations need oil around $100 per barrel, in order to pay the bills, the same with the Russians and in South America. America, the Europeans and China on the other hand, will benefit greatly from low energy prices, and whether it is one month, or one year, it will serve to stimulate these economies. Look at the surprising gain in jobs when the latest number was released on December 5th, 321,000 jobs was way above analysts estimates and much of that i believe could be attributed to low oil prices. Gas prices are now 40c a gallon lower than last year at his time putting an extra $5.2 billion per month back in consumers pockets. Merry Christmas !!!!, that's a lot of gingerbread houses. Unfortunately, in my opinion, prices this low will be short-lived and will most likely be carried only into the spring. I don't believe we go back to $110, but i could see prices trend higher to the $80 to $85 level. There are a number of reasons I have this opinion. The first is what I mentioned earlier about how many firms especially those that are late to the production game need the price to remain $70 or higher to be profitable and the second major reason is that demand will rise as economic activity jumps because of low energy prices. My bias at these prices levels is higher. Firms will have to start curtailing production and supplies will tighten. The market is now in oversold territory and I would look for a bounce.