Oil markets have followed equity markets this week into free fall, dropping to $32 – a repeat of the lows of 2009. We're now at a place where the lunacy of unsustainably low oil prices need their time to play out, finding a bottom only the gods might venture to guess at.
Still, we've got several reasons to continue to slowly and carefully deploy cash into energy stocks that we know will represent superb value once this maniacal momentum play has finished – but we need to do it with as much safety as we can manage. The old saying goes that markets can stay irrational longer than one can stay solvent, and we've no need to test that adage in order to continue to position ourselves for the long-term oil renaissance that will inevitably come. This column will show you how I try to do that.
Chinese equity markets have been halted twice already this week, finally paying the piper for vastly overrated growth projections. With the world's second largest economy in crisis and Chinese currency on a fast devalue track, oil prices continued to slide rapidly towards $30, replaying their lows from the financial collapse of 2008.
Lots of things are different in oil markets today than in 2008, the most important of which is that credit is in nowhere near as much stress. In 2008, the fast removal of leverage from the oil markets dropped prices whereas this collapse is overwhelmingly being pressured by mostly algorithmic momentum selling.
If anything, the…