The crash in Oil prices in 2015 was spectacular. By early 2016, crude was trading just below $30 a barrel compared to over $100 16 months earlier. One of the best trades in early 2016 was buying Oil ETFs. You would have doubled your money in three months. Not to shabby.
So far this year, Oil prices have hovered around $55 per barrel. But, recently the rational for higher prices is not looking good. The past few months speculators have been loading on long Oil bets.
Also, US gasoline demand is decreasing and suppliers are increasing output. Yikes!
All three of these together present a strong case for downward pressure on prices. Energy stocks fell on the news.
The news also spilled in to the High Yield credit markets. To say it another way, investors who lend money to energy companies got worried they may not be able to pay them back in the future.
This is worth keeping an eye on.
Have a great weekend!
– The Risk Runner