Drop in Oil Inventories/Price may be Good News

by Laura Ehrenberg-Chesler on May 12, 2011

in Economic Indicators,Energy,Investment Strategies

Yesterday reported inventories for oil dropped more than expected which sent the price down below $100 per barrel, and caused a sell off in the Dow and the S&P 500. This seems to be a knee jerk reaction to what is probably good for many sectors of the market in the near term, including

energy stocks. Several reasons for this include: 1. Lower oil prices are better for the consumer and probably consumer discretionary stocks. 2. Oil/Oil Service companies continue to make good money even if oil drops to $85 per barrel and, in addtion, it hinders demand destruction. 3. Input costs should drop for Industrial companies that use energy to produce their products, enhancing margins. As long as the drop in oil inventories/price does not reflect underlying economic weakness, this pullback in price could be good news for many sectors of the market in the coming weeks.

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