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Here's Why Low Oil Should Be Celebrated By Bulls

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Here's Why Low Oil Should Be Celebrated By Bulls

Contrary to popular belief, low oil prices are a positive for U.S. stocks, at least according to Dennis Davitt of Harvest Volatility.

Low oil prices are typically associated with poor or slowing economic activity since it implies demand for anything and everything that requires oil input isn't as strong.

But that was then and this is now, Davitt explained during a recent CNBC "Trading Nation" segment. Now that the oil market is saturated with supply from new sources such as U.S. shale and OPEC members including Libya and Nigeria, cheap oil will have a positive impact for both the broader economy and consumers.

Cheaper oil prices will now lower the cost of production, be it through lower costs of plastic or the overall cost of energy that is needed to manufacture a product, Davitt said.

"Lower crude oil prices in the United States will certainly provide a tail wind for manufacturing and overall economic activity in the United States versus the rest of the world," he said. "I feel lower crude oil prices is a good reason to own stocks. Earnings on those stocks will be greater due to improved profit margins."

Consumers paying less at the gas pump due to low oil prices also implies more money in their pockets to spend on other items. Naturally, this also supports the case for owning stocks as any incremental discretionary income is expected to translate to higher overall consumer spending activity.

Related Links:

Oil ETF Rally Not Too Believable

How To Accept The Down-Cycle In Oil And Embrace US Shale

 

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Posted-In: CNBC Dennis Davitt Oil oil prices OPECCommodities Markets Media Best of Benzinga

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