Despite OPEC's increased expectation of more oil output world-wide, US crude for June delivery ended Thursday up 1.1 percent at $47.83 and Brent added 1.1% to $50.77.
Despite OPEC’s increased expectation of more oil output world-wide, US crude for June delivery ended Thursday up 1.1 percent at $47.83 and Brent added 1.1% to $50.77.
OPEC Makes Bearish Oil Forecast, WSJ, Friday May 12, 2017
Last Friday, oil prices sharply reversed their downward trend. The low was $43.75 and the close a whopping $46.22. Only one down day was recorded since.
So far that has not been enough to reverse the downtrend in the Energy Service XES. But it too has moved off its lows. The same is true for the Energy Producers represented in the XLE.
I have been suggesting that the "newer kids on the block," like Apache might hold some clues for what direction prices will take. Apache APA hit a low of $46.09 last Friday, closing at $51.07 Thursday. Bell weather Patterson PTEN is struggling adown nearly ten dollars from its February high near $30.
Natural gas continues to prove my point that social mood sets prices, not supply and demand. The US Energy Information Administration reports natural gas stockpiles grew by 45 billion cubic feet this week. But contrary to what one might think, natural gas futures on the continuation chart rose from $3.27 to $3.38.
While crude and natural gas prices have firmed, it may be that stock market weakness will pull energy and service shares lower. What do I mean by weaker prices as the NASD 100 makes new daily highs?
If energy prices, at least for crude and gasoline are low, one might think the Transport Index is hitting a new high, right? Nope, Transports recorded their high March 1 at 9,600. Thursday was a down day closing at 9,037. The same sort of thing occurred in 2015. Prices peaked in February and March, 2015 around 9,200. By late August Transports dumped sharply the last few days of that month to 7,500. I am officially on record as expecting the same thing this time around. By the way, in 2015 the NDX NASD 100 rallied right into a peak of 4,700 by early August. But a low of 3,800 was recorded before August ended.
Meanwhile across the Pacific, the Shanghai Index has fallen from 3,200 to 3,061 since April. From June, 20115 to August, 2015, that index fell from 5,200 to 2,900. Will history repeat? This bears close watching. Another sort of contrary indicator was noted this week. Complacency or investor worry as indicated by the VIX volatility index fell to a new low. Here is what I mean by a contrary indicator. Complacency always registers a new low at market highs. Investors take on ‘a what me worry attitude’. This was the case for March, 2000 and Fall, 2007. At market lows, think March, 2009, VIX is off the chart, literally, as investors worry and fret. So divergence occurs with the Transports headed down amid low energy prices while the NASD 100 is setting new highs, just as it did in March , 2000, exactly 17 years ago. The fact that retail shopping is undergoing a sea change is also indicative of a change in markets. Retail chains are closing stores at a record rate as online shopping grows in popularity. This is the very reverse, ironically, of the catalog shopping Sears created in the 1890s. The irony is hat every week another article appears speculating on a Sears bankruptcy.
Investors should be on high alert with low volatility, complacency the new normal, and Shanghai already weakening.
We end this column on a personal note. My research interest revolves on how changes in social mood generate social change. This area of research was pioneered by Robert Prechter. Bob first gained prominence by writing a book on the social theories of Accountant Ralph Nelson Elliott. This led to his creation of Socionomics, the predictive social science of mood. This past weekend it was my pleasure to have the Research Director of the Socionomics Institute, Matt Lampert, and the Executive Director Alyssa Hayden as guest speakers at our 2017 Student Research Symposium. A great time was had by all as they brought the concept of changing social mood to our campus. You can check out the results on both my blog and the website of the Socionomics Institute listed at column end.
Follow Dennis at http://www.themarketperspective.com
Learn more about socionomics at http://www.socionomics.net.