Profit Watch began the year with some bold forecasts.
I put them down in a report called ‘Three Wild Market Predictions for 2019’.
One prediction was that the Aussie market would touch all time highs again.
It sounded ridiculous in January. It became reality in July — for a moment at least.
The second forecast was for US stocks to bounce back after the Wall St bloodbath in the last quarter of 2018.
That idea worked out fairly quickly, too.
It was the last forecast that left us hanging.
That was for oil to become the trade of 2019.
It’s fair to say this was flat out wrong.
The trade and growth worries all year suppressed most desires for anyone to long oil.
Gold shined instead.
It’s Aussie gold stocks that have been the stars of 2019, at least for the first half of the year.
But a year is a long time in the market — and the attacks in Saudi Arabia will reverberate for a long time.
Perhaps we still have a chance to nail three from three published in our little report…
Brent crude just had its biggest price jump in 30 years.
This entire situation is a warning flare for a tumultuous 12 months coming up.
The Middle East is returning to the chaotic powder keg it’s always been.
We can’t say when it blows up, only that it’s prudent to have an oil speculation or two in your portfolio just in case it does.
If nothing happens, perhaps you lose nothing but time.
If we get fireworks in either the Middle East or elsewhere in the energy markets, your ‘chaos hedges’ could soar.
The thing I like about most oil stocks is they have no bright future baked into their price.
Some of them have no future in their price at all. That means you get a lot of upside relative to your downside risk.
These are stocks to ride the coming storm…
IMO2020: The deadline approaches
The timing of this attack cannot be ignored. We’ve talked a lot in these pages about the upcoming IPO of Saudi Aramco.
Plus we have the new environmental regulations due in January 2020.
That means the oil market is unlikely to return to the rather benign outlook it had before last Saturday.
Considering that it was mostly the fear of recession that marked the last few quarters.
If there was a worry, it was over demand. Now supply moves to the more important concern.
It may not matter that the US and Saudis can meet the current disruption with stocks from emergency inventories.
The world now knows that if the Saudis can be hit once, they can be hit again…and again.
That puts a permanent worry over the oil market…just as the new rules due in January confuse everyone with their impact.
That’s two worries where nobody knows the answer and will likely lead to one outcome: strategic hoarding that will exacerbate any rising price cycle.
There’s another factor in play here, too…
From out of the shadow
We’ll discover if Hydrocarbon Man is still with us as much as I think he is.
You might recall back in July, I pointed out that oil still underpins the global economy.
That’s despite the fact that millennials and green voters generally despise it.
But Hydrocarbon Man is you and I, and them.
We recycle. Perhaps we try to eat less meat.
But we still drive to work, fly if we feel like going somewhere exciting and generally consume energy at a high rate.
I recall reading some time ago about a former Australian soccer player — now in the media — saying he saw a new role for himself as part of the ‘climate transition’.
I wondered if this new pose includes him declining an ambulance or rescue helicopter should he need either and they happen to run on petrol.
He also didn’t seem bothered by the fact his commentary role required him to fly all over the world.
Point being: it’s much easier to virtue signal your green credentials when oil prices are depressed and Wall St is subsidising US production and therefore our lifestyles.
The shale industry loses staggering amounts of money. That cannot last.
And yet shale is now the swing producer for the world — even more so after the weekend attack on Saudi Arabia.
This dynamic is unlikely to end in lower prices soon.
Don’t get me wrong. Oil stocks are not a buy and hold move.
But to ride the coming storm? Now’s the time to be accumulating.