The roller coaster ride of oil

Millions of American every year pay a hefty sum of money to be thrilled by some of the world’s fastest rollercoasters. The feeling of being suspended above the world as you climb higher and higher only to have crashing down is an amazing feeling.  If you have not conquered the rational part of your brain that says that it is not logical to put yourself in those metal contraptions I highly recommend a trip to your local amusement park. Another option has been to stay long oil over the past year, below is a chart showing roller coaster ride of Brent Crude Futures over the past year.

brent-cude-chart-1-year-11-30-2016

In January we hit the bottom turn of the roller coaster and analysts did not have a consensus on oils next direction.

“The price of Brent crude fell to $27.67 a barrel at one point, its lowest since 2003, while US crude fell as low as $28.36.

Many analysts have slashed their 2016 oil price forecasts, with Morgan Stanley analysts saying that “oil in the $20s is possible”, if China devalues its currency further.

Economists at the Royal Bank of Scotland say that oil could fall to $16, while Standard Chartered predicts that prices could hit just $10 a barrel.”1

Looking back now it was just a market overreaction. The client calls and excessive worry that the world was slowing down are now just a bad memory. Since the bottom in January: oil prices have recovered, China is still growing at a respectable rate and Latin America did not fall apart as many people feared. After the OPEC meeting yesterday we saw oil prices once again climb above $50.00 to close out the day over 8% ahead.  Today as of writing this the Brent Crude markets are up over 3% and gasoline futures are up over 5%. While we do not how the cuts to oil production that have been approved will happen or if the countries involved will follow through, we have a short term relief in the energy market’s low prices.

In our Aggressive SRS mode we rotated two additional energy names into the model in the past month allowing us to capitalize on the energy spike, while at the start of the year we held no energy names going into the January selloff.  That account is a concentrated portfolio (20-25 holdings). Two of our energy names were up mid 20% and a third was up 10%. Needless to say, we haven’t seen a day like today since Hurricane Katrina caused all the refiners to have problems.  The long term goal like every other money manager is to outperform our index, while that does not always happen in short time periods, days like yesterday are the reason you invest for longer periods and follow your investment thesis.

If you would like more information on our Systematic RS Aggressive Portfolio, please e-mail andyh@dorseymm.com or call 626-535-0630. Andy will also be hosting a webinar on Friday December 2, 2016 at 2 PM ET introducing our family of Systematic Relative Strength Portfolios.

 Upcoming Events

Please join Andy Hyer, Client Portfolio Manager at DWA, for an introduction to our family of Systematic Relative Strength Portfolios on Friday, December 2nd at 2 p.m. ET.  These portfolios provide disciplined access to relative strength strategies including U.S. Equities, International Equities, Fixed Income, and Global Macro and are available on UMA and SMA strategies at a large and growing number of firms.  Click here to register for the webinar. The event password is dwadwa.

 

This example is presented for illustrative purposes only and does not represent a past or present recommendation.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  The performance above is based on pure price returns, not inclusive of dividends, fees, or other expenses.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.

1 West, Matthew. “Just How Low Can Oil Prices Go and Who Is Hardest Hit?” BBC News. January 18, 2016. Accessed December 01, 2016. http://www.bbc.com/news/business-35245133.

 

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