2 Likely Outcomes From The OPEC Decision
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The hits keep coming…
Just this week, the big news came from a familiar industry yet again.
As somewhat of a side note, I saw a tweet today that struck me. It read something like this:
Best Performing S&P Sector
…Last 3 days… Energy
…Last 5 days… Energy
…Last 10 days… Energy
…Last 20 days… Energy
…Last 65 days… Energy
…Last 125 days… Energy
…250 days… Energy …500 days… you guessed it, Energy.
I’m beginning to sense a theme here, and this trend may have just refueled. Which brings us to the news of the week…
On Wednesday, the Organization of the Petroleum Exporting Countries (OPEC), a group of 23 countries that produce 40% of the world’s oil, met to decide on production targets. The aim of this meeting and all others like it is to keep prices high and stable.
But just as central-bank governors argue about the speed of rate hikes, members of opec+, as the wider group is known, disagree on how fast to turn the spigots. After this brief meeting, however, a consensus was reached.
The agreement? To cut production by 2 million barrels per day, or roughly the equivalent of 2% of the world’s total output, a decision that has already begun to send ripples throughout the sector.
This decision is likely to lead to a couple of different outcomes. First, the above trend of the energy sector outperforming due to increased demands and prices, is likely to continue, but what else does this mean?
Two additional outcomes from this move is a decline in the stock market and a further increase to inflation.
When oil prices spike, stocks sink, as evidenced by the about face the S&P took on… drum roll… Wednesday.
Next, inflation. Since the inflation calculation is so closely tied to energy prices, this surge in oil prices is likely to drive inflation even higher than before. This is where that August CPI print of 8.3% really gets its teeth. That figure came at a time when oil prices were at the lowest level they’ve been since around January of this year. Now, prices are headed back up, meaning the next CPI print could be a rough one.
So what to do now? Well, we have the information we need to make our next decisions, and investors have a few options.
You could sit on cash, or you could look for ways to put that cash to work, if even only for a short-term play.
Here are some examples:
- Invest in Energy/Oil
- Hedge against rising CPI
- Shorting at-risk sectors or the market as a whole with inverse ETFs
The obvious move would be to invest in oil in anticipation of prices rising; however, given additional economic omens, you may just want to short the market and watch as prices skid lower.
The strategy you implement is up to you, but it is good to know you have options. The important thing is that we take action. Otherwise, we risk letting these opportunities pass right on by as the rest of our portfolio sinks. The choice is yours to make…
Use magnifi to search for your favorite energy investments today!
