NEW RECOMMENDATION: Amidst the carnage of the global stock markets this morning and even in light of the sustained bear market in crude oil, the narrowing of the contangos in Brent and WTI brings us to become a buyer of crude as noted at length above. We’ll buy a unit of crude oil, split between Brent and WTI, upon receipt of this commentary. We shall, for the moment, give these prices the latitude to move 3% against us, hoping that we can tighten that up when we return Monday. The Gartman Letter
Dennis Gartman has been notorious for being a “spunk receptacle” for hedge funds looking to unload a bad position. His audience is moronic high net worth financial advisors and brain-dead institutional “buy the dip” with other people’s money” pension and investment fund managers. Perhaps the only better contrarian indicator than Gartman is Jim Cramer.
When Gartman says he has to go long crude because the “term structure” mandates it, it tells me some slippery NYMEX or London trader is whispering sweet nothings in his ear to generate buy interest from the herd referenced above.
I have always maintained that the plunge in the price of oil of is first and foremost a product of the Demand side of the Supply/Demand function. Events in China and the hard commodities markets (see Glencore’s stock) reinforce and confirm my view.
But to further bolster my “fundamentalist” view, here’s a picture of the supply/demand function per Merrill Lynch:
To be sure, oil has fallen quickly and sharply – conditions which could lead to an “oversold” bounce on short-covering from short term scalpers. The fundamentals will ultimately drive the price of oil into the $30’s. I made that call when oil first dropped below $50 in February and I’ve maintained that call since then.
And consider this: Merrill’s global “economists'” models are factoring in positive economic growth from the large “developed” market economies. Clearly that outlook is severely brain-damaged…