These last few weeks have been confusing, even for a 35-year oil trading veteran like me.
There are some things I’m recently seeing in energy stocks vis-a-vis the energy markets that I’ve rarely seen before.
I’ve done exceedingly well during my career by investing in energy stocks using my understanding of the underlying energy markets.
If I went back and charted both of them using data from 2010-2014, or 2003-2007, or 2013-2016, you’d be hard pressed to tell the difference between the two lines on the chart.
But have a look at this:
(Click to enlarge)
There’s been a huge divergence between oil prices and oil stocks, starting most apparently in the early winter of 2017 and currently flat-lining the stocks right now compared to oil.
So, what the heck is going on? I suggested a couple of possible reasons in my last column, including rising interest rates, EIA forecasts for future production and a few rogue shale players screwing it up for everyone with continuing breakneck drilling. My old friend Jim Cramer suggested on his show that younger hedge-funders are uninterested in ‘old-fashioned’ fossil fuels and won’t buy. If that’s true, they’re going to be left out of a global demand picture that, in even the most aggressive estimates, won’t begin to flatten until 2040.
Frankly, I’ve discarded all of these as insufficient to derail a correlation that’s…