Anyone who has filled a gas tank knows the price of crude oil has steadily dropped since mid-2014.
It has yet to hit lows of 1998, near $11 per barrel for West Texas Intermediate crude, but breaking below $30 per barrel in January seemed to open the market’s Pandora’s Box: global equities markets swooned, and high-yield bonds, of which energy firms are big borrowers, staggered. The S&P/ISDA CDS US Energy Credit Default index soared, roiling an already beleaguered market.
There seems no light at the end of this pipeline with the crushing supply and lower global demand, but in contrarian market thought, this might be the time to get exposure. And as the commodity adage goes: There’s no cure for low oil prices like low oil prices.
Understanding the Drill
The Commodity Futures Trading Commission’s Commitment of Traders (COT) is a weekly report in which various segments of the commodity business must report positions in futures and options markets. The best use of the report is to review at least a six-month trend in market player movement. However, in a snapshot, the Feb. 2 report of WTI New York Mercantile Exchange positions shows Commercials, which are producers and merchants, were net short crude oil, but net buyers since the previous report. Managed money, or large speculators, were net long, but net sellers from the previous report. It seems the so-called “smart money,” ie. commercials, are cautious on the market, where as the other players believe the market will go higher.
Dennis Weinmann, principal at Coquest, an energy broker and investment firm based in Dallas, says the COT snapshot really doesn’t tell much, especially as it’s already a week old when it comes out. Perhaps a better indicator — he notes facetiously — is the mainstream media, like when CNN.com’s recent lead story was about crude oil at 13-year lows. That, he told one colleague, must mean capitulation is near.