Jamie Dlugosch

Oil Rumors Fuel Price Gain

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Jamie Dlugosch takes a look at the hottest topics to keep an eye on throughout the day.

The market closed higher yesterday, but at least we know the reason this time. Investors bought heavily depressed oil and commodity shares. Those groups have been beaten down hard mostly as a result of forced selling from hedge funds.

Rumors during the day that Saudi Arabia was cutting production fueled a big gain in oil prices. That was a good reminder that inflation may be right around the corner. Ah, but we digress. The markets still have plenty to worry about. Oh wait, maybe we are going up because of that very wall of worry. Did you ever hear the phrase climbing the wall of worry?

Whatever the reason for the gains, the Dow closed up nearly 100 points to finish the day at 8,761. Interestingly the small cap Russell 2000 index was up more than 2% for the day. Remember that small cap stocks coming out of a bear market tend to do very well and usually lead the market higher. That is happening now despite the news being very bad.

Oil prices fought off a bad inventory report to finish the day higher. The main reason, as mentioned above, was the rumor of a big production cut coming from Saudi Arabia. Even if just a rumor it was enough to spike oil 10% higher in the middle of the day and with that bad inventory report in the rear view mirror.

Crude finished the volatile day up $1.45 to $43.52. All eyes remain on OPEC and the upcoming meeting of the cartel next week. Expectations are moving to a 2 million per day reduction. I'll stick with my call of 3 million being the magic number for a meaningful move higher in oil prices. 2 million may stem the tide short term, but with a sinking economy it may not be enough to keep us north of $20 per barrel. Oil is moving up this morning to above $45 per barrel.