A Flash In The Pan

Oil rallies for a day, and stocks tag along for the ride.

 
 

Traders played the "OPEC still matters" game Wednesday when news of an OPEC agreement to limit production caused oil to rally $2 and stocks tagged along for the ride.

But there is no follow through today.

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The OPEC agreement wasn’t anything other than to have an agreement. The organization agreed to a “framework” for production caps, but a formal adoption would have to come from the official OPEC meeting in November.

Even if there is an agreement, it would have little meaning. OPEC ceased to be a true, price-controlling cartel more than five years ago. Less than two years ago even key OPEC officials admitted the group could no longer dictate the direction of oil prices.

OPEC agreements — and disagreements — are now merely excuses for traders to make a quick buck on knee-jerk reactions to headlines.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

 
 

Sept. 29, 2016


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