As oil hit a record of more than $147 a barrel on July 11, the media made a game of trying to determine the root cause by focusing on the minutia and not on economics – specifically supply and demand according to one expert.
On CNBC’s August 18 “Mad Money at the Half,” host Jim Cramer noted that in spite of geopolitical unrest in some places in the world and tropical weather threatening the oil-rich
“What do you get when you combine an Iranian missile launch like we had last night, a war between a huge oil producer and a country with an important pipeline, remember that war and how about a hurricane in the Gulf?” Cramer asked. “Well, maybe a month ago, we would have gotten oil at $150 – no, now we get lower oil and gas prices.”
Cramer said that was all a media creation and the real cause of oil’s ascent and recent decline was pure economic fundamentals – supply and demand. The media fuss is a constant joke on news aggregation sites like Fark.com, which joked August 15 that “oil prices [are] down on news that gold supplies are being hoarded by Michael Phelps.”
“Remember we used to hear all that stuff about how, ‘Well, oil is up five bucks because of Nigeria, oil’s up seven bucks because of…” Cramer said. “Wait a second, unlike the vast majority of the media and almost all the traders people interview – I have been screaming on ‘Mad Money’ that the price increase has nothing to do with all this nonsense. It had to do with supply and demand.”
According to Cramer, the supply has been more than adequate, while the demand had been “voracious,” and that caused prices to go up.” Although the price of oil has been at record levels and some oil companies have had record profits – their stocks values haven’t had the same fluctuations. Cramer noted specifically the stocks for ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) have remained the same despite their record profits that have been criticized by the media.
“Exxon was at this price when oil was $90 a barrel,” Cramer said. “Chevron at this price when oil was at $90 a barrel. I think that they’re good forecasters.”
Cramer’s advice to investors was not to fall victim to what he deemed as distractions reported by the media.
“I need you to promise me – next time the media and the traders throw you off the scent of what’s really happening by jabbering about this Nigerian shooting or about some tropical storm or an Iranian infraction – remember what happened today. Don’t be fooled anymore. You will make much more money that way.”