For those of you that have been following along, you now know we have had a somewhat bullish stance on the Texas Tea for some time and have been waiting for the Saudi goose to lay its golden egg. Well, today OPEC and confirming nations decided to make it official and they cut some production.
Well, as we write this (November 30th) the price of oil is going higher (up about 8% today) and the world’s love affair with the black gold is once again intact! Or is it?
Here is what we see and hear. There are a lot of flag wavers out there now touting $70 plus oil and there remain some in the $30s still. The reality sometimes lies in the futures market. This is where it gets a bit “high finance”. The futures market is basically the ability to sell and or buy something in the future. Say you want to purchase a car today, the price of the car today is $25,000; however, the price 6 months from now is somewhat higher at say $26,000, and another 6 months from that point the price is $27,000 and so on and so forth. This is called Contango. Basically an upward sloping curve to the right. In the oil industry, the same curve exists. This curve means producers or holders of oil can sell their production or inventory in the future at higher prices. Here is what that futures oil curve looks like today.
Source: VIP Wealth Solutions & Bloomberg
One will note that the data or facts today suggest that prices in 2017 will be somewhere around $52 to $54. Today we are just north of $49. Given this it might suggest that oil moves 10% higher? Or at least this is what the futures market makers believe at this moment. So the market has become somewhat excited, but we are less so.
Now, a note of caution is that the world may be right and oil could have a further supply squeeze and the outliers may see $70. Remember, anything can happen – Trump did win and oil could go to $70.
For us today we are happy as we have some energy positions, but we are somewhat less excited than the overall market at this point.
We will continue to monitor expectations about the future and make adjustments to the changing facts.
Thanks for reading we are going to fill our cars with gas before the price spikes. Do this at a minimum.
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