A Lesson About Financial Crashes: The Crude Oil Crash Of 2014 | Exploring Markets

A Lesson About Financial Crashes: The Crude Oil Crash Of 2014

The crash of crude oil has been mind-blowing. It dropped some 40% from June, 2014 to December, 2014. On Thanksgiving day, crude oil plummeted below $70 per barrel. It was one of its biggest one-day crashes in the last decade.

With one wave of their hand, OPEC increased the supply of oil. Thus, the price collapsed.

What can we learn from this? Wall Street expert, Jason Zweig, has a valuable lesson for everyone. Beware herd behavior, and always think contrarian. He writes:

"When the consensus is strong, it’s wrong. Between Nov. 4 and 11, more than 900 institutional investors and traders participated in the latest Barclays Global Macro Survey, a poll among clients of the global bank. They predicted, on average, that energy would generate more than a 30% return by the end of March 2015. Barely 5% predicted that the price for Brent crude oil—then about $82 a barrel—would be below $70 at the end of the first quarter of 2015. One in six said it would be $90 to $100." - Jason Zweig, Lessons From Oil's Black Friday