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.
