I watch both the Oil & Natural Gas market very closely.  These commodity markets provide an interesting reflection of investor sociology and psychology.  

  • The Oil and The Gas markets are certainly not the same regarding their market influences: Gas is much more of a ‘local’ market than the ‘global’ Oil market but that said much of the movement in both markets is based upon the sentiment of the investors be they traders, speculators, investors; institutional or retail. 
  • No one in the entire world knows for sure what will happen to O&G prices in the future (I am not a conspiracist by nature) but everyone can have a valid guess.  Although some guessers are more educated than others this does not necessarily make them more right.
  • “Not everything that can be counted counts”.  There is an abundance of information available but what matters?  Filter the crap and polish the sediment to see what shines.  The world does change but generally over much longer periods of time than a trading day.  
  • My perspective holds that the only thing that changes quickly is perception.
  • Oil and Gas prices bounce around comfort zones each day and trends are established when the roof and floor of the CZ changes.  This is the basis of technical trading. Resistance and Support.
  • I am not a technical trader by sentiment but there is certainly some guidance provided by exploring market movements unrelated to underlying value.  Commodities seem to be a much better vehicle to apply technical trading lessons than Blue Chip stocks which are generally better approached using lessons learned from the Value & Growth field of study.

Why bring this up now?  It has been an interesting exercise this past weekend to consider the potential effects of Gustav.  I held tight and did not sell HOD on Friday as it seemed possible that the storm would weaken by the time it reached the Gulf of Mexico.  A bet against Mother Nature.  As it turned out little damage was done to this arm of the US Oil and Gas production network.  Oil futures dropped as expected from this good news.  Global demand is falling and Supply is safe for the time being.  Interestingly, in the past 5 months any news was met by an exaggerated rise in the price of Oil and Gas with analysts continually revising their targets upwards. In the NY Times on May 21st, 2008, Arjun N. Murti, a respected analyst from Goldman Sachs predicted a $200/barrel ’super spike’.  As bold as this (and other) predictions seem, they can be beautiful for the analyst’s career.  The upside is huge with the title of ‘The Oracle” bantered around.  The downside risk of such bold statements is minimal; not only is everyone thankful that Oil did not hit two bills but our memory of such absurd predictions is thankfully (for the analyst)… short.  Why do I say absurd, well the rate of change was simply not sustainable to $200/barrel - demand had already been modified by $140 and if we are anything as a species, we are adaptable. I have not read Mr. Murti’s revision yet but expect to soon - although if I were him, I would keep my head down until oil does indeed hit $200! 

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