The oil price decline is over. I am calling it. Right here. Right now.
The reason being, one by one the world is saying enough is enough.
Yesterday I wrote about China's decision to put a floor of $40 under the domestic supply of oil. That was just followed by similar action from Argentina. Most likely there will be other counties falling in line with this. It's a natural policy reaction to what the Saudis have done, which has been wreaking havoc and throwing markets into turmoil.
As countries set floors, it tends to raise the price of freely traded oil because it suddenly becomes more in demand. The stronger demand ultimately forces the price of freely traded oil to match the price at which other nations are setting domestic prices. It's called arbitrage.
Argentina may be small, but China certainly is not. It's huge. Its price setting is meaningful.
To many, this may come as a shock and nothing short of economic blasphemy. They view this as meddling in the free market. In reality, however, there is no such thing as the free market. It's fantasy. The oil price collapse was all Saudi Arabia's doing. In fact, I was one of the first to write about this, way back in September 2014, when prices first began to slide.
The free market itself is an academic fantasy. In every market there is always a price setter, whether that be a monopolist like the Saudis when talking about oil, or a central bank setting the price of credit, or large organizations like Intel (INTC), Apple (AAPL) and Google (GOOGL) when they collude to set the price of skilled labor. (Apple and Google are part of TheStreet's Action Alerts PLUS portfolio.)
Governments are price setters either by virtue of their monopoly power to print money and collect taxes, or via "influence" from large organizations that spend millions to lobby and get the policies they want.
China's reaction was important because, as I said, China is a huge economy and a huge consumer of oil. The floor, I believe, is going to lead to some market stability, finally. And if $40 is the price, then that will likely be the ultimate level that the market heads back to.
Again, this is not economic blasphemy. Governments should be expected to act in their national interests. The libertarian idea that they keep a "hands off" approach has never been reality. If instability is a threat to the economy or the regime or society, expect the powers that be to act to remove that instability, or at least try. It's natural. I never understood this idea of just leave everything alone and it'll all work out. It goes against the Second Law of Thermodynamics. Entropy. A gradual decline into disorder. This is what happens when you don't control things.
John D. Rockefeller, one of the great capitalists of all time and a man whose fortune still exceeds that of Bill Gates (in today's dollars), said he would not leave his hard work and enterprise to the vagaries of the market. He sought to control the market and he did. Fabulously.
If it's good enough for Rockefeller, it's good enough for China and Argentina, too, I guess. Don't be surprised to see others come on board as well.
That's it. The oil decline is over. For now.