About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, July 19, 2013

Oil Price

Trade / Invest
The oil price has advanced nicely this year so far. Longer term players have had the easier
time of it. The leg up in price in Jan. was a tough one for traders because it came at a time
when oil was supposed to be seriously seasonally weak. The positive jog up since Apr. has
been easier what with a flare up in Egypt and concerns over transport safety around Suez
and the Sinai. WTI has stayed within my projected $85 - 115 bl. range for 2013 and has
stayed within a subtle uptrend in place following the initial spike up off the 2009 recession

The fundamental supply / demand picture for oil does not warrant the kind of advance seen
so far this year and, to be realistic, neither does Middle East / North Africa (MENA) tensions.
There is no short run bull case from the usual suspects, but as fate would have it, it appears
oil traders are enamored with the Fed's QE programs and have welcomed the arrival of Japan's punchbowl as well. The oil price, like the stock market, is front - running the fundamentals.
As of now then, oil players are also stuck with the machinations of the QE programs and very
much need to watch along carefully with equities players.

Perhaps $110 per bl. is in view for WTI, but oil is overbought in the short run, and for less
greedy traders like me, there are profits to be booked. $WTIC Daily Chart

The way I read the long term chart circa 1999 to the present is that oil is still in a bull
market, the $148 bubble top in 2008 notwithstanding. The bull remains in effect because
as supply has risen with demand, excess capacity at the wellhead has remained in a down-
trend, making supply security a more prominent feature in the environment. There are
rivals to oil coming, but the oil market still has the scale dominance. Longer term players
might well look at oil in a continuing $20 per bl. central range which is now set at $90 -
110 WTI. At this point, a sharp break below $90 bl. should trigger a careful review.

Macro Implications
There is a tough issue with petroleum products in the US. As oil has advanced in price,
folks have been conserving. However, with wage growth on average of only 1.5 - 2.0%
in a still weak labor market, sudden advances in gasoline and heating oil  prices can
wreak havoc with real household incomes and confidence. At this point, an oil price
above $110 bl. which sustains would be a source of concern.

No comments: