Everyone’s now pretty well convinced that the collapse in oil prices is a disaster for stocks, something I’ve been trying to convince people of since late in 2014. So, nothing is more important for investors than figuring when oil might bottom out, but even more, when it might turn constructive again.
I think I can tell you that now – making this possibly the most important column on oil I’ve ever written. But I’m warning you: It’s a wonky column, so proceed at your own risk.
As an oil trader engaged in this market since 1983, what’s struck me about the recent action in oil has been the parallels to other oil ‘silly seasons’ – much of the action downwards today looks almost exactly like the action I saw to the upside during 2007 and into the Spring of 2008. There are also several parallels to the downward move the oil market experienced from July of 08 to March of 09. In both cases, there is the same disconnection from fundamentals, the same massive movements of capital both into and then out of oil, the same overwhelming speculative positions driving prices – and the same parabolic price action. What does 2008 and 2009 tell us about when all of that stops?
From a fundamental side, I’ve maintained that constructive oil prices only return when real production cuts are realized – so far, those cuts have been mostly on paper with few measurable drops in supply. But fundamentals have…