Is the Oil Bust Coming?

Wednesday, September 02, 2015

What’s happening with oil right now is eerily similar to what happened in housing 8 years ago. If you don’t see the parallels, consider in 2005 construction in suburban Phoenix, Las Vegas and Tampa was booming. Everything from strip plazas to entire neighborhoods were going up in a matter of days. But about a year and a half later, construction from coast-to-coast grinded to a halt and there was a deafening silence.

A calm before the storm registered right before workers were issued the pink slips they all new were coming as construction saturated the country. Housing and commercial space sat vacant, creating modern day ghost towns. Soon after the layoffs were done, the financial collapse slowly was building into an unstoppable avalanche.

Lehman Brothers was the first to collapse thanks to the billions its brokers invested in bad debt on the subprime mortgage marketplace. Then dozens of other banks faced the same fate if not for the government using the tax dollars to bail them out.

Fast froward to the fracking boom, circa 2010, and the same investment houses having looked to the booming subprime mortgage industry were now pushing commodities. And traditionally among the most lucrative commodity investment is oil, a commodity in which many brokers are selling off their shares. Thanks- and subsequent- to the notorious reputation of oil prices over the past months, more oil shares are being dumped every day.

Many financial experts point to the positives from the drop in oil prices. This includes $6billion more every day being injected into the global economy, incomparable fallout in the housing collapse. Not to mention people will always need oil to not only fuel their cars, but also to heat their homes.

But even though there are peaks and valleys, the trend for oil prices is downward, having dropped 8% over just the past week. And just like what we saw with the housing bust, layoffs are slowing. Let’s hope the ensuing calm isn’t followed by a storm of like that of the housing bust.