Wednesday, March 11, 2015

Nostramoney: Oil Bottom in May?


This is just a fun exercise, just like all my other Nostramoney posts. Don't take it to heart, and definitely don't put in any money based on things you read on the internet.

My best bet for oil bottoming is May, but it may be extended out into August.

By then, we should see the 3 signs to signal the bottom:
  1. Weaker USD
  2. Deceleration of rig declines
  3. Actual fear
The USD has gone too far and too long. While I know that nothing in the world can say it won't keep going up, I believe that it is just a matter of time before this major trend reverses. When the dollar drops, it's inverse relationship with commodities is something that will boost up the sector, oil included.

Although fewer rigs does not mean less oil, at a certain point, it actually does. Once that floor is found, we should be seeing the basic supply and demand of oil meet at real and sustainable levels. The worry here is if the "demand" is really demand, or if it is just prepaying for storage, which is pseudo-demand. Storage should be filled by June at the rate we are going at. 

The fear that I am looking for is not just fear from the commodity of Oil itself, which would be translated to prices, but also from its derivatives, such as O&G companies and anything related to those industries. I'm talking energy credit and even equities. That's right Keppel and Sembcorp, I'm talking about you 2 bad boys. I'm so eager to pick them up!

Technically, there is some good historical parallels that show how this situation could pan out. I love the guys at Market Anthropology.

A retest of the previous bottom of WTI at $44 would make it a double bottom and seem like a no-brainer target, but with the appreciation of the USD since then, we might actually go a bit deeper than just a double bottom. That ought to scare people off. A final dump if we break past those lows perhaps?

This is of course just pure speculation and oil may have already bottomed out, but I personally don't think so. Maybe I'll miss the boat, but that's all right. This isn't the only game in town and I don't have to be forced to take a position.

Morale of the story: If you're not comfortable taking a position, don't.

1 comment:

  1. I have a comment on this in Jan this year.


    http://singaporeanstocksinvestor.blogspot.sg/2015/01/a-tale-of-two-keppels-win-lose-or-draw.html?m=1

    ReplyDelete

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