Crude oil is in a major secular bottoming formation, but it is going to be painfully slow. Part of the problem is the continued adaption of the alternatives to oil which are out there. Solar, wind, hydrogen fuel cell, improving battery along with the storage technology – these keep getting cheaper and more efficient. And more battery technology improvements are on the way. OPEC has its hands full, first with the frackers, and also with all of the alternative energy technologies. And the frackers keep learning how to get more oil cheaper. Crude oil will continue to dominate, but even Hillary’s friends in Saudi Arabia are hedging their bets and areinvesting huge in green technologies.
It seems as though speculators bullish oil bets were reduced by the most on record in the COT reporting period thru March 14. On the producer/merchant side, some of the most levered fracking companies are likely hedging prices to secure financing. There are a lot of weak handed longs in oil still, but many have gotten stopped outand many have also begun selling short,as their moving averages are pointing DOWN now – and no market goes in one direction every day. They zig and they zag. And a bounce would help the stock market, and the junk bond market. They are all tied together. The potential for a major re-test of the $26 low, but at a higher price, later this summer would offer some great entry points in the energy shares. In the meantime, the frackers have their own issues to deal with. They have issued a tremendous amount of debt, and much of it is high yield. While next month, banks are going to start going over the books of the frackers and reassess their creditworthiness. And this is only a few months after almost everyone had become “confident’ and “convinced” that we were in a new bull market in oil. Because, of course, people blindly follow the price. And when the prices have been going up for awhile, then the confidence keeps building. And the financial media joins the bandwagon. The always late to the party, the esteemed WSJ, figured out just how “bullish” oil was, right into the highs.Even the oil producers themselves upped all of their spending plans recently, right into the highs. Why? Because the price had been rallying for awhile. And the big rally from the lows last year, along with trading range since December with very little volatility and prices not falling, had made them “confident”.
Also very confident (and cocky) now is the Federal Reserve:
“Janet Yellen has a message for Americans: It’s finally safe to “feel good” about the U.S. economy.”….Uh-oh.