Remember all the warnings about the end of the oil market? Stupid stuff like oil was going to $10 and ominous proclamations about the onset of “oilmaggedon.”
The sentiment was so thick with bearishness, you knew the bounce would be ferocious. The hedgies, the talking heads on CNBC, even your grandparents at the nursing home were convinced oil would never bottom.
Yet proving Herb Stein’s rule once again (that which cannot go on forever, doesn’t), oil has rocketed 60% higher in the past few weeks. And the really funny part? Now that we are supposedly safely above $40, suddenly there are piles of bulls talking about moves to $55 or $60.
Barring some sort of geopolitical event, oil will once again disappoint all the trend chasing extrapolators. From a fundamental point of view, little has changed since $26 when they were falling all over themselves predicting cascading prices. There is still too much supply. Demand is still lackluster. And the recent risk-on rally has allowed too many energy companies to survive, eliminating much of the supply reduction bulls are hoping for.
The market was overly pessimistic at $26 and it is now equally over optimistic at $42.
An oil alternative
Instead of chasing oil, think about natural gas. Nat gas has been in a seven year bear market.
The recent oil collapse has only made funding all energy companies more difficult, so it’s not as if we are about to be inundated with a big supply increase of natural gas. And at the margin, LNG and the shifting from coal to nat gas in power plants is working to increase demand.
Everyone is busy chasing oil around, but I suspect it will frustrate both the bulls and bears for quite some time. Instead I am going to pick away at some cheap nat gas names. After almost a decade of disappointment, everyone has forgotten about natural gas… Just how I like it.
Thanks for reading,
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