Crude Suffers 22 Percent Slide In November; Oil’s Worst Month In Over A Decade; If It Is Now Time To Buy Commodities — “This Fund Should Score”

Crude Suffers 22 Percent Slide In November; Oil’s Worst Month In Over A Decade; If It Is Now Time To Buy Commodities — “This Fund Should Score”

     Stephanie Yang and Christopher Alessi had an article in this weekend’s (Dec. 1/2, 2018) Wall Street Journal (WSJ), noting that “U.S. crude prices notched their biggest one-month percentage loss since October 2008 [the financial crisis] — down 22 percent in November. Light sweet crude for January 2019 delivery settled one percent lower on Friday at $50.93 per barrel on the New York Mercantile Exchange (NYSE), and traded as low as $49.65 cents before recouping some of those losses.”

      “Brent [crude], the global benchmark, declined 1.3 percent, to $58.71, closing at a fresh, one-year low,” Ms. Yang and Mr. Alessi wrote. “Prices have tumbled in recent weeks on strong production from major oil exporters, and worries that supply will overtake weakening demand.”

     This cratering in oil prices makes this week’s/Dec. 6, meeting of OPEC in Vienna much more interesting and potentially market-moving.   As Myra Saefong wrote in this weekend’s Barron’s, “Can OPEC Reverse The Bear Market In Oil?,” OPEC “members and some non-members, may agree on a production cut, as the market reels from a more than 30 percent drop in prices over less than two months.”

     “Markets will be watching how OPEC will grapple with multiple threats to their efforts to keep prices buoyant,” said Peter Kierman, lead energy analyst at forecasting and advisory services provider, Economist Intelligence Unit. Those include “expectations of slower oil demand growth in 2019, robust U.S. supply…and vocal pressure from POTUS Trump, to keep prices lower.”

     “So far, this oil rout has been driven by the supply side, so…..the market will still need to see a substantial cut go OPEC’s target output next week for any sort of bottom to form in the futures market,” said Tyler Richey, Co-Editor of the Sevens Report, which provides daily commodities market analysis. “If OPEC cuts output to support prices like they did at the beginning of 2017, they will indirectly be providing the financing for new production to [U.S.] oil producers. Contrarily, if they open up the spigots again like they did in late 2014, energy prices will get crushed.”

     “That said,” Ms. Saefung wrote, “many analysts believe that OPEC and its partners would need to cut output by one million barrels a day or more to,” put a floor under current prices. The cut would have to be “at least one million [barrels a day] to have some effect in 2019,” Mr. Kierman told Barron’s. “The level decided on would need to be seen in the light of the increase in output that Saudi Arabia and Russia implemented in June, as a smaller cutback would just be reversing that most recent increase.”

     “If OPEC is serious about putting a stop to the slide in oil prices, it will need to act, and, at the very least, it will try to erase the increase in supply seen since the middle of this year,” Mr. Kierman added. On the other hand, if the group fails to act, then “bearish sentiment….will be locked in for at least the first half of 2019.”

     So, analysts and traders will be watching closely on Wednesday; and, no doubt making their trading bets tomorrow and Tuesday. If you see last months 22 percent decline as a buying opportunity, then you may want to read Lewis Braham’s November 29, 2018 article in Barron’s, “If Commodities’ Day Has Come, This Fund Should Score.” I refer you to Mr. Braham’s article to get all of his observations.  The key takeaways: One of the best managed commodity funds is, ALPS/CoreCommodityManagementCompleteCommoditiesStrategy (ticker: JCRAX). Robert Hyman, the fund’s manager told Barron’s, he is “currently bullish on energy, especially natural gas.” And, “given the exponential growth in the volume of batteries needed to power everything from cellphones to electric vehicles, we see growing demand outpacing supply.” Mr. Hyman added that “Yet there are no liquid futures contracts for these metals.” “So,” Mr. Braham wrote, Mr. Hayman “owns lithium miner stocks like, Sociedad Quimica y Minera de Chile (SQM) and FMC (FMC).

     As with any and all of these ‘recommendations,’ be sure to do your own due diligence, understand your risk tolerance and time horizon, and invest with — ‘both eyes open.”  RCP,

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