Business

In practice, there is no bottom to how low oil prices can drop: as Canada's Bank of Montreal calculated over the weekend, as a result of an unsustainable supply-demand balance "something has to give", and for that to happen oil may drop to $25, $20 or even $15, as some aggressive put buyers are speculating. This is what the Canadian bank said:

We believe that the weakness in crude oil prices reflects a combination of fundamental factors and financial flows. Fundamentally there is simply too much oil.

 

We’ve spent quite a bit of time this year documenting Saudi Arabia’s fiscal bloodbath. 

In the wake of the kingdom’s move to deliberately suppress crude prices in an effort to preserve market share by bankrupting the US shale complex, Riyadh found itself in a tough spot. Thanks to ZIRP and the wide open capital markets it fosters, US producers were able to stay afloat for longer than the Saudis likely expected. 

Raise your hand if this sounds familiar: markets are calm, things are stable, stocks are levitating on virtually no volume... and suddenly there is a price 'air pocket' as one or more assets unexpectedly plunge in what has become a now daily "flash crash" du jour, traders panic, unable to frontrun orderly traffic HFTs immediately shut down, and all hell breaks loose.

The latest dilemma facing economists is why "unequivocally good" low oil prices haven't sparked excuberant consumer spending across America. We have discussed the simple (though awkward for the establishment) answer many times - soaring costs for 'shelter' and healthcare have hoovered up every penny saved (and more); and now, a new study proves it- exposing the reality that many Obamacare customers pay more than 10 percent of their incomes toward coverage (and some paying considerably more).

While everything was awesome last week (apart from the last 10 minutes), it appears lower oil prices this week (WTI just crossed back below Brent's price and under $37 once again) is not "unequivocally good" for US equity markets. Following the bloodbath in China's "B" Shares overnight, traders are hoping this pain will stop once the machines "get back to work" at 930ET...

If this holds, S&P 500 will open back in the red for 2015.

As Bloomberg reports,