United States Oil USO, a major exchange traded fund for oil, is down for the last week, six months, and year of market action. It is also off by more than 1 percent for 2014. With crude oil falling in price, more price declines should be ahead for United States Oil and other securities in the sector.
There are three reasons why long term investors should be pleased by this price movement.
It makes it easier for the world to recover from The Great Recession.
Oil was driven up in price due to speculative forces as a result of quantitative easing. Testifying before Congress, Rex Tillerson, CEO of ExxonMobil XOM, stated that, based on demand, oil should be in the $60-70 range. At that time, it was closer to $100 a barrel. Speculators were making oil much more expensive for the productive elements of the global economy. For the many oil importing nations across the world, it now becomes cheaper to fuel economic growth.
In addition to making the world more prosperous, falling oil prices evince that it is more peaceful.
Oil prices spike when there are tensions in the Middle East. A major reason why there has been a recent plunge is due to positive developments in Iran. Peace in the Middle East is about as bullish as it gets for global growth.
Blue chip oil stocks are falling.
The energy sector pretty much moves as a unit when it comes to companies in the oil group. As a result, Big Oil firms like ExxonMobil and Chevron CVX have fallen more than 10 percent for 2014. For investors, there is now the opportunity to buy the shares of great companies that should be rewarding long-term investments. In addition, the dividend yields are also higher for Chevron, ExxonMobil, and other oil stocks when the share price is lower.
Hopefully, the speculators who drove up the price of oil are getting crushed by the current decline. That would be another major reason investors should be pleased by the recent decline. For the long-term investor, the falling price of Chevron, ExxonMobil, and other publicly traded oil companies should result in even greater total returns.
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