There are some analysts who are downplaying the move as only an attempt by the Saudis to maintain US market share but I think not. I think they are going after the US shale industry.
This is rather interesting if you ask me because of the impact on Russia as well.
Either way, the cut in price by the Saudis has oil traders thinking along a common line right now and that is burgeoning supplies. Economic growth is just too slow to burn through all of the oil that is accumulating.
The impact of falling energy prices should not be underestimated. It does two things:
1.) It benefits consumers and businesses with heavy energy usage such as those in the Transportation sector
2.) It harms the one bright spot in the US economy, namely the energy industry and the companies associated with production, exploration and service to some extent.
I might also mention something more along the psychological front - it feeds the DEFLATION psyche. Look at the plunge in the commodity indices today. Given that sort of environment, gold is going to continue to fall out of favor. Why buy a metal that throws off NO yield in an environment in which commodity prices in general are heading lower?
Here is a chart of crude oil...The black liquid hit a 2+year low today.
If it breaks the support level noted on the chart, we could see another $2.50 break lower from current levels. I also want to remind the reader that based on the most recent Commitments of Traders report, large speculators still remain heavily long in this market by a more than 3:1 ratio.
Just like they are in gold, they are caught on the wrong side of a plunging market meaning the resulting money issues at work will tend to keep the price depressed as rallies are viewed by losing sides as opportunities to get out and cut their burgeoning losses somewhat. It is all about reducing the pain at this point.
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