Brent Crude has fallen 12% since my note (3 weeks ago) called a peak.
Last night’s 6% decline (to $68.75) suggests and adds a little more strength to the downward trend.
The two links below discuss my bias for lower prices.
For now the $62 mark is a spot to watch and certain technicals over the coming weeks will help me decide if a new Long position is established there or around the $57 level.
Here’s a market call for you….Brent Crude is about to top out at the $78.50 level.
I’ve been bullish about the Oil price for the past year and remain so over the longer term, but parabolic advances also need a break and some consolidation.
My technical work suggests the crude oil price peaks soon and comes back to test the $64-$62 mark in the coming months.
See my 20+ year chart below. Amongst many extreme coincidences, we are also nearing a 50% move (between the 1999 low and the 2008 high) along with testing the underside of an ominous downward sloping trendline.
Anecdotally, many now are calling Oil to a $100…..and so I ask, where were they when Brent was $30 or $40….another moment of popular pundits making calls at the nutty end of a run which has seen Brent Crude Oil nearly quintuple from its $16 low in March 2020.
Ultimately, I think Oil goes to $120 – $140, in a massive ‘last’ hurrah…I’ll write more about that in a few months time.
For now, it’s time for the Oil price to shake a few people out and I love a good shakeout.
This also means having a think about your Oil & Gas equity positions.
In fact, many of them are already exhibiting weakness.
if it closes above $70, then there is clear air to the $74-$76 region, while probability of a spurt to $80-$82 remains, such a move would swing the pendulum into extreme territory.
and then we’ll see OPEC start to increase output.
Basically, traders are waiting for a break above $70 and if they see it, then watch them pile in.
for context though, going Long Oil today (currently trading at $69.50) is a marginal bet. I see the risk/reward equation as being either $6 up or down.
After all, Brent Crude already seems stretched on various measures after having tripled from its $16 low in April 2020. Establishing a new ‘long’ position at this moment is akin to squeezing the last 10% out of a trade.
Keep in mind, that markets tend to move in the direction where they can inflict the most damage……..and a $80 oil price would hurt more (politically and commercially) than if fell to $50.
OPEC are meeting today, it could be a doozy….murmurs of supply cuts.
My question to answer what OPEC may decide is…..
what do the Saudi’s and Russia want or need ?? and what will hurt America the most ?? especially following the recent accusations made by the U.S about MBS and Biden approved missile strikes against Iranian backed militia…….
the answer is higher oil prices.
Logic suggests a nice reversion of Brent back to $53 would be sensible, equitable etc. but without being a purposeful antagonist and we are a year on from last years March 8th stoush,
although Brent at $75 would remind many who’s in charge….
and I reiterate that inflation (meaning higher interest rates and higher government and corporate debt servicing costs) will likely come from higher prices in the energy complex and definitely not from services and consumer products.
Market Quips & Synopsis Some brief points about selected markets or assets and look for the links within for added musings.
About current markets, I’ll open up by saying..
I notice there is dangerous trading going on, market capitalisations in some companies are extraordinary. For example, how does $1 billion market cap on revenues of $20,000 sound?
ASX scuttlebutt says, “shorts” are trying to pressure companies into raising capital, some are seeing increased stock “promotion” activity and there are many people in the market “that don’t know what they’re doing or shouldn’t be there”.
I see the AUD and XAU (Gold) in a holding pattern, (see the AUD chart below); they need to hold 0.7240 and $1,902 respectively, breaks above 0.7355 & $1,978 should see a new lurch higher
Also watching AUDJPY closely, need to hold 76.00 to confirm “more risk-off”, A move above 0.7730 suggests “risk-on” and higher equity indices
The S&P 500 is down 6% from recent highs, Indicators are not clear in calling a new downward trend, however I think 3,272 is the target (a further 2.5% lower).
The Nasdaq 100 has now fallen 11% since its September 2nd high. Looking for it to ease a further 2.4% to 10,814 before determining the strength of the decline. The decline wasn’t a surprise, as written by me on August 29 and September 3rd
Global portfolios have a 3% short position in either (or both) the Nasdaq 100 or the SOX index
My ASX 200 target is 5,803, which is 1.2% below the price as I write.
I’m pleased with calling Oil down from $44 to $39.30. Brent held $39.30 for the past week, has since rallied 10% in past 4 days….quick rallies are not always a preferred scenario
VIX remains relatively high at a reading of 26, the call option phenomenon has influenced this increase
While we accept near-term rates will stay Lower for a while, I think the long end of interest rate curve will rise.
AAII Survey exhibiting narrowest bull/bear spread since June 11, which is when S&P 500 had a 8.2% decline. Since March 5th, more retail investors have remained bearish (than bullish). This survey remains a reasonable contrarian indicator as markets bottommed on March 26th and never looked back.
Oil Rig count showing no meaningful change of increase, see attached, number of rigs in operation has halved
I remain long term bullish on the Oil price and continue to accumulate positions (proxies) to benefit from this opinion. Incidentally, I have a view there is a coming crisis in energy prices which will stoke inflation (albeit it may be 18 months away)
In another edition, I’ll expand on various investing themes and I hope to soon publish my bullish thinking about Platinum on my Linkedin page.
I am (long term) bullish on the price of Brent crude oil, which will be another note for another day…..
but I am bearish on the equity prices of large oil companies, especially those listed in the U.S. due to their declining oil reserves, poor exploration and production cost management, awful capital allocation towards acquisitions, debt laden balance sheets while insisting on maintaining historical dividend distributions at any cost.
Furthermore, a recent brainstorm with a client (and friend) confirms the industry is operating with technology and a mentality that hasn’t changed for 50 years which has resulted in a dearth of innovation and lack of efficiencies being sought.
Shareholders of Exxon Mobil, Chevron, ConocoPhillips, Occidental, Apache and the like, should allocate ample time to assess their holdings, hedging and strategy,
while shareholders of oil field service companies…….
The increasing supply of oil and natural gas needs to translate into lower energy prices at the consumer level, in order for any cyclical upturn in economic activity and asset prices. I’m not sure how much of the current price factors in the Syrian rebellion and Iranian sanctions but it’s difficult to believe that Brent is trading at $115 considering all of the persistent weak economic news.
It would advisable for producers of thick tar sand oil (such as Canada and Venezuela) to ramp up extraction before it becomes uneconomic. With Chavez’s recent re-election and PSVDA’s recent disruptions, along with Canada’s trade deficit under pressure due to falling metal commodity prices it is plausible that this will happen.
Further to a recent post where I refer to lower oil prices into the end of the decade, below is an extract of a news story sourced from Bloomberg referencing recent comments from the International Energy Agency (IEA).
“The IEA suggests oil demand is basically going to be unchanged and that’s not going to lend support to the market,” said Gene McGillian, an analyst and broker at Tradition Energy inStamford, Connecticut. “The more-than-ample supply we have here is preventing oil from breaking off.”
The Paris-based agency also said global markets will become better supplied in the next five years as demand growth slows and production rises in North America and the Middle East.
Worldwide fuel consumption is projected to rise to 95.7 million barrels a day in 2017 from 89 million last year, the IEA said. Output is forecast to advance about 1.5 million barrels a day each year to 102 million barrels a day in the same period.
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