Oil has almost doubled in price over the past four months, so the Oil glut must be over?! Of course not, the glut remains. A supply glut or shortage is not required for prices to rise and fall and indeed it can be misleading for proper timing of your investments. Our Bearish forecast in the summer of 2014 over $100/barrel never forecasted how big the energy glut would become, but never wavered from a Sell until the Bear market low that appears to have arrived at $26/barrel in January 2016. We are also on record calling the interim low and rally in the 1st half of 2015 as well as the subsequent decline. Most well-known analysts who jumped on the Oil deflation bandwagon in 2015 failed to see the January's bottom and continue to call for $20 or even $10 Oil – a forecast we publicly stated was chimerical. We have displayed our record with a chart and previous forecast clips on our Oil outlook below to show that forecasts should be bold and with a credible history that should provide confidence and specificity for investors to benefit from stock, futures or bond accounts.
Oil reached our target today!
History Lesson: See our past reports to verify forecasts: On January 6th with Oil falling under on its way to the final low at two weeks later, our report said “Our Bearish forecasts since 2014 have continued to project lower targets, and we still expect a retest of the 2008 lows near .48 and possibly an overshoot drop into the upper ’s” (for more read our report). January 21st: One day after the final low of the Bear market in Oil and long seven month sideways action in the stock market we said: “we continue to expect a final low in stocks and oil between now and early March that will at least allow a rally phase into the Spring. Talk of sub Oil and -20% stock market corrections look less likely” (read quote). In early March with Oil at /barrel we forecasted that Oil had bottomed and would rally into the 50’s during the 2nd quarter and that investors should “Buy the Dips!” (Read our March 3rd letter below for details).
Here we made the case once again for Oil by summer that was realized today. (See report).
Oil Starting to Peak
Our past forecasts that called for a 1st quarter bottom in the ’s and rally to the in the Spring also discussed the inventory drawdown that would continue during the summer driving season. The extra drawdown this summer due to structural oil well shutdowns and rig loss should temper the seasonal price decline we would normally expect into year end. With prices at , we would be hedged or move to the sidelines and expect a trading decline back into the lower ’s. We appear to be carving out a trading range from the upper ’s to lower ’s the rest of this year. Large Spec funds are just now entering the over invested zone of net futures positions as shown in the next chart. The high confidence rally phase is over, and the risk now is to the downside, even if prices manage to work higher into our ’s zone first.
Is the energy Bear market over? A technical label is unimportant. The 2014 to 2016 energy crash hit a major low in January and is in a base building phase currently while extreme supply gluts are gradually being reduced. The swing factor is demand. If the global recovery continues without recession for the next few years, then Oil prices will be stable to higher. If an Oil consumption shock and economic downturn arrive, then new lows in Oil prices are likely, and we will no longer ridicule those mainstream sub-$20 forecasts that have been very costly to follow. For now, such labels and expectations serve no beneficial purpose, and we advise investors to take profits reducing their exposure to Oil in the $50’s and $60’s and expect corrective price action before considering new investments. Keep an eye out for inflection points in many markets to reverse or accelerate when the Fed conducts their Federal Open Market Committee (FOMC) June 14-16 as investors have mostly priced in a Fed interest rate hike.