Gold bottomed in December 2015 and momentum has been shifting to the upside since then, with gold&rs...
Still Too Much Oil?
02/13/2015 12:01 am EST
MoneyShow's Jim Jubak discusses the recent report on the global outlook for crude oil supply along with what he thinks it means for crude oil prices and energy dependant stocks.
The question for the week ahead is whether February 10 represents the turning point in yet another move in oil. Now remember oil has been down, down, down, down. We broke in West Texas Intermediate—which is the newest benchmark—we got down to $43, $44 a barrel and then we staged a rally. Rally up to above $50, $51, $52, $53 and it looked like it was going to keep going and then came the 10th.
What happened on the 10th is that we got a survey, a report from the International Energy Agency, which is sort of the energy watchdog research house for the world's sort of biggest developed economies; represents the Organization for Economic Cooperation and Development countries, US, Europe, Japan, etc.
What their report said, basically, was that hey, they didn't see any real change in the supply and demand picture for oil in the first half of 2015. They didn't see supply slowing down. They didn't see a big pickup in demand and what they saw by the middle of the year was oil inventory stockpiles around the world which would rise to record levels. This was enough to put certainly a stop to the rally for that one day.
We had West Texas Intermediate fall by 3% during the day. Brent was down a little more than 2% by about noon on that day. Now the question is, does this mark the turning point? Are we now going to see oil prices go back down and retest, $43, $40, $37, which is where people think the next test might be; those of us who are thinking about a test on the downside or is it simply a one day event and we're going to go back to where we were?
I think that what we're seeing in the oil market right now is pretty much a market that's at this point ruled by the estimation of profit between longs and shorts. With oil at $52 a barrel, if you're short you say, hey, it's going to go back down to $44 so I'll short, I'll see oil and oil stocks on that expectation. If you're trading at $43 you might go long because you think there's upside. It's a question of trying to balance those risk/rewards based on price and not much else.
My estimation is that we're going to see a turnaround, that February 10 marked the next part of the down cycle. I don't think this is anything other than trying to put in a bottom. This kind of vacillation here within a $10 range—which is actually like 25%, 20%, fairly big range—is what you get as people try to figure out what's really going on and the fundamentals of supply and demand. This is where we are right now.
At this point, I think buying more oil stocks, buying crude, crude futures with the idea it's going to go up here is a fairly risky play. Buying things like airlines or shorting energy stocks is a relatively more profitable play; that's the way I see it.
Over the next week or two, we'll see whether what we've got is a real turn in this market and a test back down to $43 where we were with West Texas Intermediate.
Related Articles on COMMODITIES
2018 will be remembered as the year that commodities bottomed and among the many I expect to have a ...
Due to the government shutdown, the CFTC did not produce a new COT report for the week so Andy Waldo...
You might not yet have heard the name Mene (Vancouver: MENE), but you could soon enough, especially ...