The recent spike in oil prices will be a headwind for the inflation numbers to be released in the near future. Some investors are not always rational, and an ugly-looking chart for inflation is going to generate some fears which will lead to higher volatility in the markets.
At this point in time, I would say that investors probably have more reasons to be bullish on crude than they have reasons to be bearish. Another cold snap in Europe could easily trigger more speculation in the energy space.
For some investors, it is easier to buy into an ETF that appreciates if oil prices rise or drops if they fall. There are a number of such ETFs in the market and investors would be wise to evaluate each of these ETFs individually to see which one best fits their own investment preferences and risk appetite.
Meanwhile, our energy trading program still maintains a positive year-to-date performance. It strategy has six algorithms that focus on global fundamentals in the energy market with inputs of refinery production models, physical oil movements around the world, field level oil production, demand forecasts, refinery turnarounds, and the term structure in the market.
Investors should deal with reality and avoid the everyday noise of the headlines. Trade the market that is in front of us and not the one that we want. While I was screening for new trading ideas after three straight weeks of declines for the S&P 500 and hey, an interesting article on the black gold caught my attention.
Here is a section:
JP Morgan is forecasting the oil production shortfall to reach a record-breaking 7 million barrels daily by 2030. The rationale behind this prediction is as follows:
1. Higher rates are reducing capital investment and exploration, extending the underinvestment trend that began in 2015.
2. Higher capital costs are raising break evens elevating the marginal cost of oil.
3. Diversion of investment away from fossil fuels in anticipation of peak demand is pushing capital allocation away from capex investment to stock buybacks and dividend increases. As a result, JP Morgan sees production shortfalls continuing, leading to higher for longer oil prices with upside price risk to USD150bbl.