“Oh hell… What’s the deal with oil?”
My buddy Jeff’s text read like an investor that risked far too much…
“I risked about $4,500 – half of my savings – betting on oil upside on this last rally… and now it’s falling part.”
What could I tell him?
That he should’ve been reading our assessment of the situation since last year?
Better luck next time?
The problem with buying oil rallies is that foolish investors continue to be trapped by them – giddy with anticipation that this is the absolute bottom for black gold.
When they realize they were duped, swindled, taken to the cleaners, they lose it all.
But as many smarter investors are quickly learning – oil has yet to hit bottom, given hefty oil supplies.
For months, as I’ve noted in Profit Alert Daily, I’ve watched with my jaw on the floor as investors chased the news of others’ bullishness.
OPEC once noted oil could rally to $200 a barrel in March 2015, igniting a short-lived rally that gave way at $60.
I still remember watching investors wasting $334 million, pushing into four of the largest oil ETFs late last year. Weeks later that money went up in smoke, as oil fell 40%.
By December oil executives started buying their company shares. Investors got giddy that this was a sign of the bottom. It wasn’t. Oil would fall 35%.
By February 2015, billionaire oil tycoon T. Boone Pickens told the world that falling rig counts indicated a near-term bottom.
Sadly, he was wrong. Rig counts mean nothing… Oil would pull back another $10 shortly after.
In July, T. Boone Pickens again predicted oil prices would hit $70 by the end of the year, and that he expects the Saudis to cut production.
Oil would fall from $46 to $38 after this second attempt.
It’s become sad watching such a well-respected guy get it wrong so often.
Now, since late August, oil has rallied well off $38 lows to $47…
Is this a sign the worst is over?
We’re not quite there.
Even Goldman Sachs – which just cut its 2016 oil forecast believes oil could briefly touch $20 in a worst-case scenario. I highly doubt we will ever see $20, though.
That’s a bit far fetched, even as the oil inventory glut builds.
U.S. crude inventories were up by more than 2.5 million barrels to 458 million in early September 2015.
And, while we’re beginning to see a dip in Cushing numbers to 56 million barrels, we have to remember that demand is likely to put in a seasonal pullback in coming months…
We must also consider that there’s not a great deal of storage space with all of this supply. That coupled with a seasonal pullback can – and will -- lead to lower prices in crude.
Buy if you want to… But realize oil is a very high risk – low reward trade here.
Buying the fear… or the blood running in the streets is an easy way to lose money.
But I can assure you that once we do see signs of a probably bottom, we’ll be one of the first ones to back up the truck. It’s getting tough to ignore major stocks – like Exxon Mobil (XOM) – at three-year lows.
I’d rather wait… than lose it all, like my buddy Jeff did.