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Posted by on Dec 11, 2014 in Laif Meidell

Oil prices fall more after report

Oil prices fall more after report

By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)

U.S. stocks opened slightly lower on Wednesday, but as the price of oil began to slip, following an oil inventory report released roughly an hour into trading, stock prices followed suit and continued lower throughout the trading day. The report that caught most people by surprise was the Energy Information Association (EIA) petroleum status report. Each week, the EIA provides information on the petroleum inventories in the U.S., regardless of whether they are produced here or abroad.

This week’s report indicated a build of 1.5 million barrels of oil over the prior week, due in part to a large increase in imports. Refineries continued to operate at a high 95.4 percent capacity, adding an additional 8.2 million barrels of build to existing gasoline stocks. Although oil prices have been in a water fall decline since late June, oil fell further following the report with the S&P GSCI Crude Oil index closing over 4 percent lower on the day, while internationally traded crude fell below $65 for the first time in over five years.

It was only a couple of years ago that the theory of “peak oil” was commonly accepted. Peak oil meant that all the major oil deposits in the world had been found, that world oil supplies were at their peak and they would do nothing but shrink going forward, thus justifying the perpetual rise in the price of oil as supplies diminished and oil became scarcer. However, the use of fracking to produce shale oil has turned the theory of “peak oil” on its head, as seen here in the U.S.

The point is, there was a time in the not-too-distant past when increasing petroleum inventories was an indication of weak demand and a sluggish economy, but with more countries like the U.S. participating in the global production of oil, rising inventories and falling oil prices will be a less reliable indication of our economic health, until a new equilibrium price for oil is found.

This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.