Not one but two bull markets are troubled, and they are at the root of the broader market's confusion. Their reversals are happening at a terrible time for each other and they are behind much of the relentless selling we have seen in the last few days. They are the bull markets in oil and the bull markets in travel and leisure. They have been two of the most reliably positive investment themes since the Great Recession ended, and now holders are fleeing them as if they are finished for the duration.
The oil-and-gas markets aren't just in retreat; they are being crushed. The cracks began when Europe started slowing its oil use. The biggest five countries in Europe are now using 5% less oil than they did year over year. Not all of that is conservation. They accelerated when the Saudis decided to go for market share rather than price, something few saw coming. It got much worse when hedge fund speculators got very long, betting that ISIS would shut down Iraqi production, taking off 2 to 3 million barrels per day from the world's supply. Instead, Libya and Iran began increasing production. Libya was in chaos but now we are hearing that as much as a million more barrels per day are being pumped vs. two years ago. We don't know the exact amount oil being pumped in Iran right now but it is more than enough to make up for anything that's come off line from Iraq or Syria.
Then there is the U.S. Everyone, including the most wild-eyed oilmen who have come on "Mad Money," has misjudged the revolution here. Every year we are bringing on an additional million barrels while consumption has increased by less than 500,000 barrels per day. We may use 18.5 million barrels per day in this country, but when you combine what we are expected to produce next year in with what Mexico and Canada can produce, remarkably, I know you won't believe this, we are only a couple of million barrels from continental self-sufficiency. And when it comes to the ability to refine all the oil we produce? We can't. It has to go overseas in some form or another, which is beginning to happen.
The glut, says Michael Mears, CEO of Magellan Midstream Partners (MMP), among the largest oil-storage firms in the country, is very real and that means plans have to be scaled back otherwise oil will become uneconomic to drill for in all but the best of the shales: the Permian, the Eagle Ford, and maybe the Bakken.
But let's talk about the other side: travel and leisure. You often hear of travel and leisure being described as a multi-trillion-dollar industry. You know that airlines, hotels, restaurants and theme parks are all part of the equation. They are historically the biggest winners in any decline in gasoline and we are having the biggest decline in gasoline that we have seen since the Great Recession.
But at the exact same time we the Ebola health scare splashed everywhere, and each day we find we know less about how it spreads, or more specifically, how easily it spreads and how hard it is to kill. Until we either stop it, cure it or contain it, you have to believe that the travel-and-leisure impact is going to grow worse, not better.
I asked Kevin Miles, CEO of Zoe's Kitchen (ZOES), one of the fastest-growing restaurant chains in the world, last night about Ebola and restaurant sensitivity to it, especially for Zoe's, which his based in Dallas, where the Ebola patient recently passed away. He said it could hurt the industry, no doubt, but it's not his job to contain it. It's the same for the people who run Carnival (CCL) and Royal Caribbean (RCL) cruises, or the Las Vegas and Macau casinos, for that matter.
But when the hot money is leaving oil's bull market and going toward the logical beneficiary, the travel and leisure market, and that market then gets hit by Ebola, all I can say is two huge strikes have suddenly hit this market, hence, the chaos isn't easily stemmed in a few days' worth of horrendous declines.
There's a ray of hope, though. I don't think oil goes much below $80 per barrel, where oil companies here still do well. And Ebola will be contained -- I don't know when, but it will. Longer-term, we might look back and wonder why we sold. But short term? It seems rational when we get strength to do so.