Energy is life. Cheap energy is therefore great news.
The collapse of the oil price is seen by many as a bad thing, but a glut of oil is the fuel for growth, not a calamity.
High prices are the cure for high prices, so the saying goes and $100+ oil was the cure for $100+ oil.
Somewhere there is an equilibrium price and its somewhere between $60-80.
This is a long way from the $20 predicted during the recent lows.
While high prices cure high prices, low prices will cure low prices too.
At the moment the markets are tied to the flow of money from QE as bonds turn into cash. The $5 trillion dollars of US QE has a maturity of 7 years so that $60 billion dollars of bonds turns into cash every month, plus whatever interest rolls in. The ebbs and flows of this cash is what is driving markets, as the cash rolls in and then is used to buy more bonds. Cash that goes into buying in bonds, flushes into carry trades especially stocks.
As bonds expire it drags on the markets and when that cash is used to buy in bonds it pushes markets up.
You can see that cycle in the DOW. It is also driving oil.
As such Oil will pulse up and down with this liquidity flow. That cycle is purely technical but for the short term trader it will be vital.
For the medium term an eventual recovery in China and the slow agonizing growth in the west will support prices.
Oil is near an initial equilibrium level of around $45, the level above is $60.
The price should inch towards these equilibrium points this year.
The bear market in stocks will drag on oil as the tide of liquidity ebbs and flows but oil will outperform as it recovers from its crash.
These trends could be interrupted in any number of ways but outside the black swans the market sends our way, Oil has likely seen its bottom.
I was lucky enough to read an article suggesting that oil would fall out of fashion and become a stranded commodity, unwelcome as an energy source for the rest of time. This was the signal of a bottom for me and I bought Oil stocks.
If anything is a lesson, always buy when consensus predicts Armageddon. Combining a contrarian attitude with a little caution is a good formula for investing.
Oil will remain a vital commodity and in due course its low price will ensure it price will rise as demand for it rises until once again its expensive enough.