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On the radar:

▪ Energies are out of favor and speculators are aggressively short gas; will the selling dry up?
Energies are out of favor and speculators are aggressively short gas; will the selling dry up?

Be greedy when others are fearful?

I was recently reminded of the energy supply crunch in the US during the 1960s and 1970s. The commonly accepted science suggested the supply of both oil and natural gas were limited and declining. Until the late 1990s, decades of failed attempts to tap into US energy reserves were considered hopeless and the US dependence on foreign energy was considered permanent. Fracking, for good or bad, has changed that. We are now producing more than we need and scrambling to find efficient means of exporting liquified natural gas at a time in which fossil fuels are seen by some as less than desirable.

The first thing I learned about the financial and commodity markets is not to fall in love with high-flying assets, although doing so lately has worked. Likewise, writing off markets most traders have grown to hate is generally a bad move in the long run. The explanation is simple, most active speculators are wrong more than they are right; human behavior and opinions change, even the “facts” can change as they did with the peak oil theory. Thus, if the masses are convinced a commodity will do one thing it generally does the opposite; if beating the markets were easy, everyone would do it.

With these thoughts in mind, I can’t help but feel like the energies are due for a face-saving rally. After all, it is nearly impossible to find a positive analyst on natural gas or oil. Further, the stocks associated with energy companies have been thrown out with the bathwater. Yet, from a seasonal perspective, the crude oil market generally finds a low in late-January or early-February. Natural gas, on the other hand, tends to find a bottom in late February but there is a good argument to be made that the seasonal weakness came early due to warmer than expected weather.


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Crude oil futures have plummeted from last week’s highs as traders wipe away Middle East tension risk premium and account for the demand destruction that could occur due to the coronavirus. Yet, this feels like a massive overreaction; also, it should be noted the stock market isn’t giving the virus nearly as much credit.

According to the weekly oil chart, despite the recent decline, oil is simply trading in the same price range that consumed much of 2019. Further, trendline support comes in near $53.00. Knowing the messy nature of oil, we wouldn’t be shocked to see the slide print $50.00 but the odds are a significant low will be forged in this price range. If that is the case, a break above resistance near $60.00 could finally force prices into the mid-$70.00s! If we are wrong, the low $40.00s could be seen in short order but this is not expected.


Natural gas, unlike oil, is trading near its 2016 lows. Those in the industry are referring to this as a depression; workforces are being laid off, bonuses foregone, and rigs shut down. Yet, as we all know the cure for low commodity prices is low commodity prices. Further, we are seeing speculators position themselves aggressively on the short side of natural gas. In fact, they are holding one of the largest bearish positions in history, which could be a signal that all the sellers are in (and selling could dry up). We can’t rule out a quick run to $1.60, but it is reasonable to assume the lows in natural gas are looming.


Sometimes when “everyone” is short, or at least bearish, a commodity, the market can violently reverse course without any changes in fundamentals. Look for probing lows in gas and oil to mark potential trend reversals and seasonal tendencies suggest.

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Seasonality is already factored into current prices, any references to such does not indicate future market action.

There is substantial risk of loss in trading futures and options.

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