The stock market is enjoying a rally right now as the news of oil dollars coming to the rescue for Citigroup (C) lifts the entire financial sector. And with oil prices down after a dramatic drop yesterday, Big Oil stocks from Chevron (CVX) to Exxon (XOM) to Statoil (STO) are on the rise in the hopes that their profit margins will remain intact.
Investments like the Abu Dhabi Investment Authority made in Citigroup are likely to become more common in the future, reports the International Herald Tribune:
"The oil-producing countries simply cannot absorb the amount of wealth they are generating," said J. Robinson West, chairman of PFC Energy, an international consulting firm. "We are seeing a transfer of wealth of historic dimensions. It is not just Qatar and Abu Dhabi. Investment funds are being set up in places like Kazakhstan and Equatorial Guinea."
But watch out! Europe is actually becoming an increasingly desirable target for oil-producing countries, so all this wealth may not flow into the U.S. stock market as easily as it has been lately.
Additionally, it is worth noting that the financial sector may not be out of the woods yet, despite the confidence inspired by the Citigroup deal. The financial sector still has issues with disclosure, and things like conduits and CDOs, which are losing in terms of value and demand, and are already contributing to losses in the financial sector. So, while oil dollars happen to be giving the stock market a lift right now, recent history shows that some of the fundamentals may be in danger — and that means more volatility moving forward.
Disclosure: I invest in none of the companies listed above, although I do have a bank account with Citigroup. I am considering Statoil.