Good article Jim.
Nothing goes straight up or straight down.
In fact, strong rallies and strong sell-offs tend to overcompensate in their respective directions.
“One potential fly in the ointment of current OPEC thinking would be if oil prices started to more closely shadow market fundamentals, which both the IEA and OPEC noted as "weak" and "far from balanced" in their latest monthly reports. As it is, oil prices have tracked the course of recovering global equity markets to hit levels of US$60/b in the last week, before falling back to the high US$50s/b—still well over the threshold identified by the Gulf ministers (and indeed under the average budgeted oil price for the OPEC-11, which lies in the low US$40s/b).”
This is exactly why I think WTI will drop below $50/bbl in the short term.
Sentiment has carried WTI from $50 to $60 in the last month, not fundamentals. In fact, as we have seen in the jobs reports, stress tests, corporate layoffs, earnings, etc., fundamentals have not strengthened at all in Q1.
The only real bright side has been April auto sales and they are only up because the big 3 are giving cars away.
Housing starts leveled off somewhat, but interest rates on mortgages are practically zero. I would not be surprised to see housing developers giving away a free Chrysler with every home purchase!!!
The Dubai market is currently giving away a free premium BMW or Mercedes with each condo...really!
There will be another wave of panic as JQP realises that the downturn is not over and he rushes to lock in recent gains (or minimize losses if he bought in the last 2 weeks!).
The oil price, and thus our beloved energy stocks, should follow the direction of that panic.
Can anyone see a flaw in this thinking?
I am very interested in the "devil's advocate".
JMHO,
S&P |
