Crude oil has been going down in a straight line for the better half of the past month. Yet, simultaneously, stocks have risen to new highs, seemingly elated with the fact that a large swath of energy companies will become burdened with enormous debt repayments in 2017.
The absurdity of traders is only eminently exposed by the monthly returns of crude stocks–down just 1% vs a 10% decline in the underlying commodity. More than that, a great many of them have climbed higher, as the price of their product dropped.
Some of these names include SGY, CWEI, RICE, PE and FANG.
CLR has no business being up 5.5% for the month, as the price of WTI drops. There is a disconnect transpiring here, a disheveled lack of correlation between the stark and painful truth, and one residing in the fantasy land of mother goose and QE infused rallies, a seemingly endless array of bad characters permeating the marketplace with their brand of foul odor only a sand loving ostrich could endure.
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There’s a lot of demand for the equities as big asset managers moving back into the space… almost everyone I know was underweight energy prior to the rally and are slowly rebuilding those positions. Fundamentals will matter at some point.
Take a look at 1-year oil chart (you can USO as a proxy). Oil is at a precipice, and if it doesn’t catch a bid soon, it will probably test $40 and the market won’t be able to ignore it anymore.