Like commodities in general, oil made a bottom in early 2016. But after rallying strongly, it peaked in early 2017 and has been trending lower ever since.
This has created a lot of confusion. The chart is volatile, messy, and hard to read.
Is it bullish, bearish, or indecisive?
You could probably argue any of the above. I would say it’s short-term bearish and medium-term indecisive.
And I would also argue that this indecisiveness will turn bullish in the months ahead.
I say that because the ‘psychology’ of the market favours such an outcome.
Sentiment towards the sector is extremely bearish. At the Livewire Live investment conference I went to a few weeks ago, energy didn’t rate a mention, except as something to be avoided.
And a few weeks ago, the boss of Shell said he was preparing the company for lower prices ‘forever’.
Seriously. The boss of one of the world’s premier oil companies sees lower prices ‘forever’…
You only get these comments deep in a bear market. People just cannot see higher prices, in the same way they could not fathom lower prices in a bull market.
Here’s another example, as reported by Bloomberg on 4 August:
‘If an oil trader so good that he was known as “God” can’t win in today’s markets, it’s hard to imagine who can.
‘Andy Hall is closing down his main hedge fund after big losses in the first half of the year, according to people with knowledge of the matter. His flagship Astenbeck Master Commodities Fund II lost almost 30 percent through June, a separate person with knowledge of the matter said, asking not to be identified because the details are private.’
In the short term, oil will likely correct a little. After all, it just had a strong rally from around US$44 to US$53 a barrel. A correction to around US$48–49 a barrel over the next few weeks would create a ‘higher low’ and set it up for another move higher.
As a result, I’m looking at accumulating the right energy stocks for readers of my premium newsletter, Crisis & Opportunity.
To me, the money is clearly flowing into commodities, including oil. But there is an absence of investor interest, or any sort of hype. That’s a result of the long and damaging bear market. People lost a lot of money. It’s a case of once bitten, twice shy.
Editor, Markets & Money