Hey, I know I'm not Citigroup, but perhaps I could get a little credit for seeing the coming boom in commodities a year before Ed Morse? On Monday, Morse and company released a note on commodities, particularly centering on oil and natural gas: "Citi is especially bullish commodities for 2017", Morse wrote, noting that oil and gas production were in sharp decline in the U.S. and gathering momentum towards "rebalancing".
Well, thanks, Ed.
The question now, of course, is how to take advantage of this, provided you've not yet put together a commodity-responsive portfolio that biases investments towards oil and natural gas stocks.
And here is where the Citigroup analysis falls short of the mark, and where I come in. Because it's rather easier today, in mid-2016, to note a long-term trend is coming (or it's easier than doing it in early 2015, as I did), than it is to pick out specific stocks or even ETFs to buy and target those stocks with entry levels. And that's because now is not such a great time to do that.
We've seen in recent days the oil market lose some of the collected steam it had gained since lows were hit in February. Oil markets had briefly breached the $50 level, only to come back for the last several sessions and trade closer to $45 a barrel. Natural gas, after touching $3/mcf, has similarly weakened to trade nearer to $2.75.
Unfortunately, the oil and gas stocks we had hoped might also weaken and provide reasonable entry points haven't done much weakening alongside the underlying commodity. Blame it on the receding fears of Brexit, some increased optimism about Chinese growth and a stock index that has frankly and unexpectedly roared forward, taking even oil and gas stocks along for the ride, despite commodity prices that are going the other way.
Therefore, I cannot, for example, recommend EOG Resources (EOG) at $83.50 with oil at $45 today. The last time oil was here in early May, EOG was trading almost $5 a share lower. Similarly, Cimarex (XEC) was selling for $108 a share, not $118 and Anadarko Petroleum (APC) was $48, not $56.
It turns out that if you wanted value in oil in today's market, you'd literally have to buy oil. That's something I did for most of my working life, as a daily trader of the financial oil markets, but it's something I generally do not recommend for regular investors.
Instead, I just recommend you be patient and disciplined and wait for an inevitable cooling in the stock market to buy quality oil and gas stocks.
Oil is only being temporarily pressured by the return of supplies from Libya, Canada and Nigeria, all of which aided the premature rally above $50, combined with the continuing strength of the dollar, still being buoyed by Brexit fears. But the bullish trend is far from broken: U.S. production is showing the largest year-over-year decline in a decade, according to the EIA, while OPEC members are accessing the bond markets at the fastest rate ever, according to the Wall Street Journal, to raise capex just to keep pumping.
Like Ed Morse says -- with far more influence than Dicker -- 2017 is going to be a great year for oil and oil stocks.