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 !!!

Thursday, December 26, 2013

Oil Price

Whether long or short (See Nov.25 Oil Price), oil was my baby to trade in 2013. With
this post, I attempt to put the oil price into a broader context.

Despite its usual volatility, the oil price has been in a nice cyclical uptrend since the first
half of 2009, and has been trading in a $18 per bl. channel since then. The channel markers
for the current month are $97 - 115 bl. Oil is set to turn seasonally weak again from the
second week or so of Jan. 2014 through the end of Feb.. I had been thinking for quite a
while that oil could well fall to $85 by the end of Feb. 2014, but with a firmer tone to the
global economy, I am now not so sure. Perhaps a dip to the high $80s would be a better bet.
At any rate, the oil price has been compounding at a 10% annual clip since the middle
of 2009. This compares to a 15% pace over the 2000 -2008 period when global growth,
with China in particular, was faster. If the global economy is nearing a faster velocity for
the next couple of years as many expect, we ought to see the oil price accelerate out of the
current $18 bl. channel even before consideration of any supply disruptions. WTIC Crude

The oil and gas group has underperformed the broad SP 500 by a fairly wide margin over
the past five years despite the superior performance of the oil price to the CPI. Yes, it is
true that natural gas has been a drag on oil company earnings over this same period, but the
gas price has improved rather sharply since early 2012. Right now, investors are smitten
with rotating into the cyclicals and technology but the oil / gas complex might not be too
far behind in a firmer global economy. ^XOI vs. SP 500

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