Beware of the Absolutes
Predicting the oil market is tough stuff, believe me. There’ll be a period of several years of price action when it seems obvious that oil just can’t go down – no way, no how. Suddenly, we’ve entered a “new age” in oil prices, all the analysts say, leaving the old order behind.
Triple-digit oil prices are here to stay!
Of course, there’s nothing but damn good fundamental supply and demand breakdowns and technical analysis to support this prediction from only the best-paid premier, major investment banks and from the most elite and successful oil traders in the world.
Then it all comes apart. We witness ‘the unthinkable’ – oil drops to levels that haven’t been seen in decades, thought by all to be impossible. But ultimately the ‘truth’ of these new levels are understood by the same analysts who thought these prices were impossible only a few years ago – and now they see the light: Oil has reached a new ‘new normal’ now, where the analysis of current and projected supply and demand, coupled with the fast moving technological advances of oil extraction and alternative sources will now make for oil prices that cannot ever again advance significantly.
I don’t reference super-trader Mark Fisher or ‘commodity king’ Dennis Gartman in any way trying to make fun of either of them in particular; Lord knows I’ve been quoted as convinced of price floors in 2014 that turned out to be more than porous myself. I use these two examples precisely because they are so respected: One, certainly one of the most successful energy traders and clearinghouse managers, the other the author of still perhaps the most highly respected commodity newsletter in the world.
So, it is with the immense difficulty in calling a long-term price floor OR ceiling in oil in mind that I say READ THIS, Goldman Sachs’s quick look at why OPEC is dead and buried and oil is never seeing prices much above $60 ever (EVER!) again.
Then READ THIS, outlining just how badly (desperate!) the Saudis are in maintaining production cuts and further negotiating an extension in late May. For that new deal, the Saudis are also looking for a commitment for cuts from previously exempted Iran. Not one oil analyst, by the way, is hopeful that the Saudis will get that cooperation from their rival.
Add these two oil downers with the latest industry cold water bath that Houston’s CERAWeek brought and you’ve got an oil market that drifting, sliding, sinking lower – and taking even solidly run, relatively debt free oil stocks with them. If you’re skeptical that oil prices have established their “new new new normal” or whatever, you might ultimately be proven right. But at least for now March has been a tough month, indeed.
Now, I’m not saying here whether it’s the time to buy, or it’s the time to sell – although I will try to figure that out on my upcoming webinar this Monday, March 27th (sign up here!)
I’m merely saying remember Mr. Fisher and Mr. Gartman if you think we’ve conclusively reached either the absolute bottom – or the top – of the oil market.