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How To Trade An Illogical Oil Market

One of the things that appeals to me about energy investing is that very often, the energy sector’s sensitivity to changes in demand makes it a kind of “canary in the coal mine” for the broader stock market. That is only useful, however, when energy, or more specifically crude, is leading the way. What we have seen over the last few months, and increasingly over the last couple of weeks, is the opposite…stocks are leading crude prices.

I don’t mean that the two are moving in absolute lockstep every day, but rather that the overall sentiment that is driving WTI futures seems to be one borrowed from stock traders, namely that even though the U.S. economy is in tatters, everything will be fine really soon. That has shown itself of late, not in the form of a big pop in crude, but in CL trading in a rapidly narrowing range, even in the face of very bearish news.

Within the U.S., it is clear that the rapid reopening by some states of their economies was a huge mistake. Coronavirus cases in places like Florida, Arizona and many other Southern and Western states that went that route are exploding, pushing the overall rate of new cases in the U.S. to new highs seemingly every day. That leaves the Governors with an unenviable choice of either admitting they were wrong or risking the lives of thousands of their constituents to avoid doing so.

I can be as cynical as the next person when it comes to politicians, but not even I think…

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