The oil market has been doing incredibly well over the past few days; and for good reason. Investors are starting to see the light at the end of the tunnel with regard to the supply glut. As a result of oil’s rally, US stocks have also been doing relatively well. Today, we’ll talk about what’s causing oil to climb, what’s causing US stocks to climb, and what we can expect from both markets moving forward.
What Is Causing The Value Of Oil To Climb?
To understand what’s causing oil to climb, it’s important to understand why it fell. The value of oil has been on a turbulent path as the result of a supply glut. The law of supply and demand tells us that when supplies are high and demand is low, the value of the commodity must fall. That’s exactly what we’ve seen from the oil market. For quite a while now, the world has been producing millions of barrels of oil more than is necessary per day. The oversupply has taken a drastic toll on the oil market. With that said, there are two big pieces of news that are causing the rally…
- OPEC – OPEC is the world’s leading oil cartel. OPEC members are responsible for the vast majority of oil that is produced around the world. The Secretary-General of OPEC, Abdullah al-Badri has recently asked OPEC members and non-members to work together in order to solve the supply glut issue.
- US Oil – In other news, US oil production is down. In fact, in the month of September, the United States produced 120,000 barrels less per day than average as the result of low prices forcing pressure on the market.
Both of these major pieces of news focused heavily on oil production, the big issue that’s causing the declines we’ve seen in the value of oil. As a result, investors are hopeful that the supply glut problem will be under control in the near future. Essentially, investors see a possibility that supply and demand will balance out. This makes them more willing to invest in oil and causes the price of the commodity to climb.
Factors Causing The US Stock Rally
There are currently two reasons US stocks are up at the moment; one of them being oil. Here they are…
- Oil Price Increase – The value of oil plays a role in the market. That’s because some of the biggest stocks on the market are oil companies like Exxon Mobil. It’s also important to note that oil plays a crucial role in the energy sector. Even solar stocks are at the mercy of the value of oil. Because oil plays a crucial role in so many stocks listed on the market, when the value of the commodity spikes, we tend to see a rally in US stocks.
- The Federal Reserve – The Federal Reserve has also been a key player in the stock market as of late. Throughout the year 2015, the Fed has talked about increasing its interest rate by the end of the year. If it was to do so, consumers would spend more money on interest and have less money to spend on products and services, which would put downward pressure on the market. However, recent poor economic data has surfaced. With poor economic data, it will be harder for the Fed to increase its rate. Therefore, investors are seeing a continuation of easy money in the market.
What We Can Expect To See Moving Forward
There are so many variables to take into account here. To make things simple, we’ll keep things short. While oil supply news is great, I still see quite a bit of turbulence in the market moving forward. Also, with poor economic conditions in the US, I’m not sure how long the fact that interest rates aren’t going up will be able to support the market from further declines. With that said, I’m expecting the rally in both oil and US stocks to be short lived.
What Do You Think?
Where do you think markets are headed and why? Let us know in the comments below!