Why does a lower oil price take down the stock market?

Interesting point, but wouldn't that mean that the Euro value of a company remain the same while only the Dollar value deminishes?
We don't observe huge losses Dollar vs Euro, but that's what we would expect if the resource backing the Dollar loses value.

Saudi's are dumping oil prices to screw the Russians production. Once they've made their point Saudi prices will go back up. You may spend a few cents less per gallon if you are relying on Saudi oil. This situation hits the market 10 fold compared to how it affects the economy.

No, the price of oil has nothing to do with the strength of the dollar, you are merging two separate issues. It's the demand for oil that sustains the dollar as the global reserve currency.

Why does the stock market do this?

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>oil futures.
If oil futures are down it means adults who have to do adult things arent doing them and thus dont need oil. this is bad because what adults do in the economy is important.

But yeah your faggoty nigger ass will be able to drive cheaper and do what ever nigger faggot things you need to for less expense.

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We need oil.
We need Dollar to buy it.
If the oil price goes down, then we need less Dollars and therefore it becomes less valueable... right?

Oil backs the USD but the USD actually more or less backs all FIAT currency through economic entanglements. The US economy is integral to this globalized economy.

Venezuela has cheap oil. What is their fiat currency worth? Now you know

must be why the dollar is down
you wanna buy oil anywhere in the world
you do it with dollar
consequently if oil is cheap so will be the dollar
the market isn't down because of the virus, or because of how the stars align
its down because the price of oil dropped 30%

Yes - but - no one has explained why the stock market - not the dollar - crashes when oil does. Like OP - my intuition tells me stock market should go up because the most important commodity underpinning all of their business just got cheaper - its cheaper to ship things, to make things, etc - more people ordering - so why does oil price crash make stock market crash instead of boom?

Alright. So the falling oil value is just a result of other industrial components shutting down.
For example travel and trade are being reduced, that leads to the industry being crippled. The falling oil price is just a result of that.

This user gets it, to expound on what he said, the US has agreements with several key oil exporters (mainly the Saudis) to guarantee their security and geopolitical interests in exchange they only except USD for their oil. This requires counties to acquire and hold USD if they want to purchase oil. This in turn adds value to the dollar and makes it a reserve currency. This was a contributing factor to nearly all of our involvement in the Middle East.

To put it in the bluntest terms:

* Markets hate uncertainty.
* The coronavirus has caused less traveling.
* Less traveling = Less fuel/oil consumption.
* Less fuel/oil consumption = More reserves & forces prices lower.
* The oil producers wanted to cut production to protect prices from going lower.
* Russia said no.
* Saudi Arabia said "Fuck you" and retaliated.
* Oil prices plummeted.
Oil price uncertainty + coronavirus death watch uncertainty = Markets lose their shit.

That's how we got the stock market that we got today.

youtube.com/watch?v=13Rll6ZHbow
just watch the first minute if you want to understand. basically price of oil is low because china is on lockdown. all are economies expected to slow down due to coronavirus. oil produduction hasnt ramped down. there is now a glut of oil nobody's buying so the price is going down.

Oil > Dollar > Stocks
if anything i am surprised the market is "only" down ~12% considering crude oil dropped 30%
but the year is long so time will tell

That makes sense of course. So In my example, both would lose about the equal amount of value which would present itself in the stock market crash we are observing.

I fail to see how cheaper energy is bad for production. Something is rotten.

And less cash gets injected into the market... typical black fucker.

dumb as rocks

Checked. Thats what I don't get. Germanbro who says oil>dollar>stocks - this doesn't explain anything. If I have stocks in a company, and oil price drops, I think "hey great - my company can buy shit cheaper" - my stock price should rise...

So, you talk about the dollar - the dollar falls because of the falling oil price - on which the dollar's strength is linked. Again - if I'm a company in the US - things just got cheaper for my trading partners around the world- so they're gonna buy more of my stuff no? Again - I'd expect the Dow Jones to rise as the dollar falls - in an inversely proportionate manner.

Why am I wrong? Please. I find this fascinating but know nothing.

if the dollar (or any currency for that matter) goes down people tend to move their assets into other currencies
for the same reason you should never put everything into only one currency

energy is cheap because there's less production (china lockdown)

Im sure the russian/saudi is part of it, but keep in mind some companies had their factories in china shut down for 6-8 weeks. And even now they are "open" by law but that doesnt mean they have people to build or ship shit. If you arent shipping shit you arent burning gas. Now look at all the business Travel that is being cancelled because of corona-chan. Oil usage will be down for the year.

no. the spread sheet relies on transactions being logged and the total amount that moved back and forth as money changed hands

gasoline is bought so often that its value affects gdp growth. gdp growth is important to a fiat currency in that it dictates how many more units you can produce without devaluation. america mass produces money every year. a number of countries dont use it to complete transactions globally and there is no reinforcement of the idea even europe said they dont give a fuck. its not international law to do it

so oil being lower value hurts america by default. america selling more oil internationally is also ruined now. america got a meager 2.1% for 3rd and 4th quarter last year. now think about america not selling oil internationally after its contracts expire (companies buy and sell commodities and durable goods through contracts at set rates for a set time or amount which ever comes first) the next contract will be under its current pricing relative to when the contracts are drawn up. its not worth it to sell for america given the cost of labor that includes the cost to pay people to ship it. they would have to outsource shipping and even then getting it out of the ground is wrecked. and then the previously mentioned situation with the fiat

the stock markets haven't reflected the state of any countries economy in over 50 years
i get the confusion from no-traders who think how the market should work, as it originally did, but hasn't in a long time
stock/bonds are a guarantee for money
if the money (FIAT) they guarantee you is worth less today than it was tomorrow so will be your bond
imagine a world where FIAT was backed by GOLD and GOLD drops 30%
what would that mean for the money in your wallet?
on your bank account?
in your portfolio (which is in other terms just a volatile bank account)?

It's not just travel. Shipping from china is way down. Get ready for shortages.

I am actually helping companies re-shore products that they fucking need for the spring because they cant get shit shipped from china.

Best explanation Ive got, Shale oil is deeper and harder to extract than russian oil, Shale oil companies rely on high barrel prices $50+/barrell to make a profit as it justifies the added expenses of shale oil. When oil prices are very low they literally lose money per barrel, might as well fill barrells with cash and send that overseas. Russia can produce oil at around $4/barrel it does not matter to them that they are fucking us because U.S. blocked russias second gas pipeline into europe and this is retalliation... politics as usual. Normally this would not matter so much, cheaper flights, cruises, cheap deisel for trucking, except those industries are all fucked by corona right now, there is no balance and the markets are already destabilized. The markets need to recover quickly to prevent shale companies going bankrupt.

Because it has very little to do with Putin and Iran dicking around with their oil supplies, and far more to the fact that a pandemic is sweeping the globe.

>oil>dollar>stocks
What this is supposed to mean is: oil price goes down > dollar loses value (because of the petrodollar situation explained by others) > stocks lose value
I think you are correct when saying "my company can produce stuff cheaper". Dropping oil prices might have a positive impact for companies. BUT the negative impact might simply outweight them.
In the end your company runs more efficient for saving money. But what does that accomplish? In the end of the day it's still just earning Dollars. If the dollar loses more value then your production is being buffed, the company loses value in the end.

Cheap oil affects oil exporting countries directly, and oil importing countries indirectly.

Oil exporting countries exchange oil with goods and services from oil importing countries, once oil becomes too cheap, and unprofitable, oil exporting countries reduce their imports and hence the demand on oil importing countries goods and services reduces.

im wondering the same thing.. cheaper transport and cost of production means higher profit margins for US and EU business. It makes no sense at all, the stocks are dropping because entire countries are shut down not fucking oil lol.

yea I don't get it either, I thought if oil prices were too high it was supposed to be bad for the economy.

fucking nigger..
you ever wondered why it's called PETRO dollar?

zerohedge.com/markets/these-are-banks-most-energy-exposure

And when shale goes bankrupt banks are on the hook for a few hundred billion so then the banks go tits up etc etc

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Saudis are willing to sell us cheap oil. OMG our economy is gunna tank sell sell sell. No sense whatsoever.

Thanks for the explanation. That actually makes sense.

Let them die then. Shale is retarded anyways all they do is destroy the environment an poison the water. Lets them do belly up for investing in stupid shit no the taxpayers problem..

Yes but kikes will make less profit.

Bank America was down 25% today you dont think the taxpayers will bail them out

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>Isnt cheaper oil going to improve the economy?
A mix of things is responsible
1. A lot of market cap is made up of companies whos business is mining/selling oil, or serving those companies. With a low oil price those companies will be significantly less profitable for obvious reasons. Existing oil wells will become less profitable, and some of the more marginal wells will be shut down due to being unprofitable. It also puts a halt on new drilling because the new investment is no longer viable. Thats not just oil companies hit, but lots of related companies to. So less revenue for all of those. The shale industry is even going to have companies going out of business.
2. Airlines/hospitality is significant market cap too. Corona is hitting them hard. Airlines are cancelling routes. I think I heard that some airlines in the UK are cancelling upto 50% of routes. We have had one weaker airline go out of business already. People are flying much less. Affects hospitality too and all industries serving these industries.
3. All industries in general are affected by China basically shutting down. Supply chains are fucked. That production is gone. It cannot be made up. Companies of all types are literally going to have less product to sell. Even if they dont need china manufacturing, they need raw materials from some of these places. Drungs industry for example. China is keeping unable to send or is simply keeping it for itself in this time of uncertainty. International shipping is down what? 40%? Or 60% I cant remember.
4. Production slowing down means people are going to be put on reduced hours and going to be paid less. So less demand too. Economic slowdown.

Its not just the oil price going down, its the economic effects of corona too that people arent sure of. But oil going down affects leading indexes because oil producers make up such a large part of them. For example look at how much of the UK FTSE100 is oil producers.

I'm an economist. Oil prices going down means that investments in oil production are forecast down. Since the investments are worth less, business expenditure and growth decreases, hopefully temporarily while they find new assets, securities, or companies to invest in. Coronavirus is destabilising foreign (Chinese) investments at the same time. This means there are fewer available investments and it's wiser to either hold the money, or buy more US Treasury bonds if you're a financial institution. FWIW, I'm investing 80% of my money into DOW and the FTSE 100 in either two months from now, or when they hit 40% below regular pre-virus level.

TL;DR companies are prioritising saving rather than growing as growth is currently untenable.

The cost of doing business goes down with a lower oil price. US shale is an exclusive game (Halliburton, Chevron, Exxon) that doesn't benefit the common American. The job losses for the fracking industry will be overshadowed by lower prices at the pump for us all.

If orange man is smart he would take advantage of the low prices to booster our strategic petroleum reserves in preparation for nuclear war with Russia/China/Iran.

>I'm an economist.
Notice my answer above yours is better and more insightful than yours, and I am not an economist. Also notice that I did not feel the need to preface my response with an appeal to authority.
I have no doubt that you are indeed an economist.

it's bad for speculative investments that assumed a higher future price of oil

It doesn't, unless the economy is already piss weak

same I'm riding 3x bear ETFs until a cure is announced or the dow hits 27k then I'll go bull with a 3% trailing stop
if all goes well I'll hit 6 figures this year

Fucking hell the day I discovered Yas Forums knows jackshit about economics
No wonder you're all socialists, what happened to the ancaps? How did they become ancaps in the first place?

Dollar is backed by land, not oil

>I'm investing 80% of my money into DOW and the FTSE 100 in either two months from now, or when they hit 40% below regular pre-virus level.
In the meantime gold will be a huge money maker due to the irrational flight from equities.
Video-conferencing companies like Zoom are worth a look as most fortune 500 companies are looking for risk-averse options to continue business as usual in the face of Corona virus.

Cheap oil saves a little money. The REASON oil is cheap is how fucked we are. If oil was just cheaper that’s all great, if oil is cheaper because China is completely fucked and isn’t buying their usual amount, manufacturing and shipping are fucked and need much less oil, people are not traveling anymore so airline companies don’t need as much oil, any countries that depend on tourism for their economy are fucked, opec and Russia both need money and are producing MORE oil when the demand is gone, shale companies are fucked because oil is dirt cheap, all the massive amounts of money the shale companies borrowed won’t be paid back to the banks, who are gonna get fucked, and on and on

So this is the power level of Yas Forums economics, huh...

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The DJIA is not the whole economy. I believe at least two major oil companies are included in the Dow 30. So oil prices dropping makes my wallet happy and my IRA/401k sad.

Shut up commie you're even more moronic for not realizing the economic calculation problem in the first place

I know it's easy to feel smart when you have a talent for rattling off a few random anecdotes and made-up (yet plausible) scenarios, but if you think that your typo-ridden mess is either informative or useful, I'm afraid you're in for a nasty surprise when you reach undergrad.

Pulling bullshit out of thin air is extremely easy to do. Here's one for you: the reason why cheap oil isn't helping business growth is because people are using cars more which are impacting the environment and increasing the tax burden. Here's another: oil price reduction is decreasing plastic production which means plastic bottles are going up in price which means Coca-Cola is selling less which means the overall supply level decreases.

Any of these things *might* be true. I am not a commodity trader, and neither are you. Unlike you, I don't go out of my way to look retarded to impress fellow teens, I'm here to inform using simple, rigorous, well-founded answers that are uncontroversial and are grounded in reality.

Pic related.

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Sticky prices

>that fucking guy on the railing

Kek.

Testing, am I shadow banned?

Black monday wasnt caused by corona or oil prices
Why? There has been a drastic lowering of oil prices before, in 1991 when the US invaded Iraq, was there a crisis then of this size? No, so what's different?
A weakened economy with 10 years of central banking setting interest rates to zero (or even negative interests in europe) supporting companies that shouldn't exist (like zombie companies, companies that only operate on loss), then the FED started to raise interest rates (february 2018 vix explosion, 2018 xmas stocks crash which made the central bank cancel the interests raise). They continued to shrink the volume of fiat in circulation and then in setember 2019 the intrabank credit market exploded, the central bank had to print hundreds of billions of dollars, it was just a question of when and what would trigger a collapse

As always, it happens like the austrian school says it does but the state will invent an excuse

government credit distorts market prices generating exacerbated investments in production but the investment has no demand. When people return to their normal time preferences, the crash happens and the bad investments are liquidated

>is this a crisis
Yes

>can this get worse? whats the systemic risk?
you have an extremely fragile economy because of cheap central bank credit, an extremely indebted economy, banks in a fragile position, companies living on debt. So something appearing and bringing the economy down wouldnt be hard as everything is interconnected, but how would that happen? No idea, most likely petroleum companies breaking down since they work with a lot of credit which would make banks lose money, a big systemic risk (as banks owe a lot of money to each other believe it or not). We need to see how it goes

Debt is real money. Cash is fake. Gold is a joke like bitcoin. You should get as many credit cards as you can at any given time. Never use cash unless for illegal reasons.

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Price stickiness (or sticky prices) is the resistance of market price(s) to change quickly despite changes in the broad economy that suggest a different price is optimal. "Sticky" is a general economics term that can apply to any financial variable that is resistant to change.Aug 19, 2019

Which means while you’d think everything dependent on oil would get cheaper the jews won’t change the prices until they have to.

>less cash gets injected into the market
You dumb fucking moron, it's a monopoly, it doesn't matter how much cash is injected into the market when they purposely fluctuate given markets.

When oil price drops to nothing, oil companies can't afford to maintain their operations, tons of people get laid off.
When tons of people get laid off, the labor pool is flooded with surplus and wages go down
When wages go down, nobody can afford anything
So ALL businesses lose money because they ALL depend on consumers with disposable incomes.
People stop buying things and demand for consumer goods drops
When demand for goods drops, production of goods drops, and people in every business that produces goods get laid off
When fewer goods are produced, prices for goods go up

So now you have people with no jobs or jobs with low wages and high prices for everything. Well, except gas...

So yeah, cheap oil makes gas "cheap" for the consumer, but it literally fucks everyone as well. The "benefit" of cheap gas is a drop in the bucket compared to the economic contraction that occurs.

get rid of the memeflag brazil, this place is run by kikes

It's going to hurt the profits of boomer CEOs which is "bad".

>Less cash.

And who cares? If that cash has more purchasing power and is deflated it shouldn't matter.

JHFC

American oil production is largely fracking, by highly leveraged (debt laden) producers with a cost of production in the $70's per barrel. Low oil prices mean they go bankrupt, cascading into the HY debt markets, from there blowing up CDS spreads. IR derivatives accounting for about $700 Trillion (yes $Trillion) start to fail, bank liquidity underpinned by the derivatives dries up, credit markets freeze, and we're dead mates.

ACA Capital >> Bear Stearns (hi Jimmy) >> Lehman Brothers >> Hank "tanks in the streets" Paulson (Hank, you don't have enough tanks).

OR
Kreditanstalt >>> fuck the world.

>Muh calculation problem
Destroyed by Oskar Lange about a hundred fucking years ago. Stop hiding behind outdated arguments that were shit even in their own time.

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What's the difference? Im new here, so far it seems pol believes jews are responsible for everything and they don't seem to understand economics even on a surface level

Shale makes us energy independent. You wouldn’t have liked living through the oil crisis in the seventies where you had to wait in line for rationed gasoline. Shale (used to) guarantee gas wouldn’t go up past a certain price (beyond the idiot states taxing it, that is)

We had to tie our currency to something that made the middle east and therefore Israel relevant to 'our interests' since Joe Sixpack, while not /ourguy/, could give two flying fucks about Israel otherwise. Forcing everyone to buy and sell oil in USD accomplished this goal nicely.

This is the reason why, despite it being obvious to anyone without a severe mental handicap nuclear fission power has been the way forward for several generations now, the Jews have fought it tooth and nail kicking and screaming every step of the way.

Based Algerian

Nothing I said is even remotely controversial. It's literally econ101, with no bearing on the schools of thought (which by the way barely exist anymore, good LARPing though). Also:

>fiat money supply decreasing (?)
>FRB stable
>QE stable

Does all of your "knowledge" come from high school textbooks from fifteen years ago, or did you watch some YouTube videos as well?

Nah, boomer CEOs will save their profits by laying off their employees. Employees are always the first thing to get axed and boomer CEOs continue to earn a huge personal profit at the top of a smaller operation. They might even bankrupt the company, but they'll still be earning millions all the while. They are set for life while everyone else's life is ruined

it has less purchasing power and it inflates. everything becomes more expensive while wages go down as a result of massive layoffs and decrease in consumer goods productions.

A large portion of America's revenues comes from oil.
Low oil prices affects it's general economy.
It occurred due to a geo-political move carried out by Trump to fuck with Iran and Russia.
It heavily benefits China though, a country that Trump was supposedly trying to isolate.