I’m supposed to be commenting on oil and oil stocks – but it always seems these days that I must move upstream and talk about everything except oil, in order to understand what’s going on in the markets.
This is not unusual, however, for the summertime. As volumes fade and traders head to Europe and the Hamptons, indicators get ‘twitchy’. You’ll see both extreme signals from indicators that should mean something, but don’t – and others that frankly should mean nothing, but somehow infect the trade massively.
Take the Russian “coup (?)”. First off, was it a coup? Well, you’ve got a mercenary team of more than 30 battalions in the Wagner group, paid for by Putin, turning away from the battlefield in Ukraine and suddenly marching towards Moscow. In turn, Putin declares their leader Prighozhin a traitor and high-tails it for St. Petersburg. He hasn’t resurfaced since. Despite the last minute ‘agreement’ to avoid an assault on the Russian capitol, the results are that Prighozhin at the very least humiliated the Russian defense ministry by marching within 100 miles of Moscow before turning around, all without firing a shot. Even with Prighozhin’s last-minute retreat, if what we saw on the weekend wasn’t an aborted coup, I don’t know what is.
But what the heck is going to be the result of all this?
No one seems to even want to guess – it certainly demonstrated Putin’s weakness and highlighted the lie of the Russian rationale for the invasion in Ukraine. It seems unlikely that this event will simply disappear in coming weeks and months without further ramifications – for Ukraine, for Russia, for Europe and the US.
And what about oil? One thing you might have expected to see was a pretty unsteady oil market as a result of – what shall we call it – event? Ok, event. Historically, when you’ve gotten a destabilizing event in some Mideast country like Iraq or Iran, we would see oil rally between $2-5 dollars based on the possible disruption in supply that might result. But in this case we saw basically nothing – perhaps even a small drop. This is as an aborted military coup rocking the world’s number two natural gas producer and number three producer of oil. But throughout Monday, oil has traded mostly down a buck, between $67.50 and $69. Nobody seems much concerned about supply at all.
Hey, when markets are acting crappy, it seems almost nothing can wake them from their slumber – and boy, have these markets been acting crappy. Even with oil production drops of a million barrels a day from the Saudis or Wagner troops occupying the southern weapon stockpiles of Russia in Rostov-on-Don, nothing can seemingly make markets rally.
Except for tech, of course – but there I go again, talking about everything but oil. Still we cannot ignore tech – it is the only sector that has outperformed for 2023, and even when it dips, it acts like a dip that must be bought. And since we’re talking about tech, I guess we must mention Bitcoin, right? With a new futures ETF and other ETFs coming there is plenty of fresh bull market excitement for the crypto markets, with million dollar dreams dancing in many a 20-something trader’s head.
So, what do I make of all this? A military coup in the PLUS nation of OPEC PLUS leads to a weaker-trading oil market, while prospects simply of a mainstream ETF spikes that crypto market more than 15% – above $30,000. That’s where we are. And it’s telling me something — that the mood of these markets is not positive for oil and oil stocks, despite the many fundamentals telling me the opposite.
Should I go through all those remaining bullish factors in oil? The dying production in the Permian? The dropping rig counts for the 8th straight week? The production cuts from the Saudis starting to hit supply numbers? The latest study from the Oxford Institute that China will be tethered to imported fossil fuels for the next two decades no matter how strongly they pursue renewables?
Nah – sometimes the markets tell you all you need to know. I’m no less bullish on the long-term supply problems that are inevitable in oil, but now’s not the time to commit. Keep your powder dry. Go relax on a beach.
Or, wait for the dip and buy Bitcoin. (that’s what I’m going to do.)
That’s all for this week.
