Oil to $100

Oil is currently at around $80 per barrel.

Oil prices extend gains as fears ease over omicron’s demand impact
www.spglobal.com/platts/en/market-insights/latest-news/oil/0…
Global oil prices continued to gain ground above $80/b Jan. 8, helped by a growing consensus that demand remained surprisingly resilient to the current omicron-led wave of COVID-19 cases which spooked markets in late 2021…Oil demand markers in most of the world’s biggest oil-consuming countries hit post-pandemic highs by late December, according to Google data, despite initial mobility curbs in many countries to slow the spread of omicron.

On the thought that oil may well go to $100, I bought a small position in Marathon Oil (MRO) which has a high beta. I may buy some April calls as well.

DB2

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Wishing you well DB2

But buying high is never a good idea.

Oil is currently at around $80 per barrel.

Wow, oil prices were negative less than two years ago. Of course, I’m sure that plays a role in the recent steep climb in oil prices. Those negative oil prices drove many producers out of business and prompted the surviving producers to scale back production, exploration, and drilling. The shrinking supply combined with the rebound in demand drove oil prices back up again.

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A dozen years ago, I went big on oil in January/February, to sell on Memorial Day, to ride the annual media hysteria wave about gas prices. Made about 25% every year. Didn’t work so well when there were no longer oil industry people running the government.

Steve

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Wishing you well DB2
But buying high is never a good idea.

It comes under the heading of buying winners rather than losers. For an example, here is a backtest covering the DJIA companies over 20 years. The stocks were bought when they made a 52-week high.
www.thetraderisk.com/is-buying-stocks-trading-at-52-week-hig…
…in all three of these tests we observed a net profitable outcome with each subsequent backtest more profitable than the prior. Buying stocks at 52-week highs is a form of momentum and there’s lots of evidence and research out there that supports this factor despite the counter-intuitive nature of “buying stocks at highs”.

There are also quite a number of academic papers supporting the strategy. As one example, here is a paper by Liu et al. that looked at markets outside the US:

The 52-Week High Momentum Strategy in International Stock Markets
https://web.archive.org/web/20141023192924id_/http://www.fma…
We demonstrate that the 52-week high momentum strategy proposed by George and Hwang (2004) is robust in international stock markets…Moreover, the 52-week high and the Jegadeesh and Titman (1993) momentum strategies tend to coexist independently within a market; both strategies earn statistically significant profits conditional on the ranking of the other…In contrast to the predictions of the behavioral models, our results on raw and risk-adjusted returns support George and Hwang‘s finding from the U.S. market that the 52-week high momentum profit does not reverse in the long run.

Bhootra et al.
www.sciencedirect.com/science/article/abs/pii/S0378426613002…
We find that the stocks that attained the 52-week high price in the recent past significantly outperform the stocks that attained the 52-week high price in the distant past.

DB2

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On the thought that oil may well go to $100, I bought a small position in Marathon Oil (MRO) which has a high beta. I may buy some April calls as well.

After one month, oil is up from $80 to $90. MRO has gone from $18.30 to $21.70 (+18%). I bought the April 18 calls at $1.71 and they are currently trading at $4.04 (+135%).

DB2

IEA warns of ‘small cushion’ in oil markets, expects supply shortfall to deepen
www.spglobal.com/platts/en/market-insights/latest-news/oil/0…
The oil market has “only a small cushion” due to dwindling spare capacity and shrinking stocks, the International Energy Agency said Feb. 11, cautioning that the supply shortfall could deepen if OPEC+ continues to struggle to raise output. “If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on prices,” the IEA said in its monthly oil market report.

On the demand side, the Paris-based organization trimmed its growth forecast for 2022 to 3.23 million b/d but still expected demand to exceed pre-pandemic levels, averaging 100.58 million b/d.

DB2

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On the thought that oil may well go to $100, I bought a small position in Marathon Oil (MRO) which has a high beta. I may buy some April calls as well.

Buy on the rumor; sell on the news.

MRO up 18% from January.

The MRO April calls at 18 strike price up 129%.

DB2

Buy on the rumor; sell on the news.

MRO up 18% from January.

The MRO April calls at 18 strike price up 129%.

DB2

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That is what war profiteers do.

Jaak

Buy on the rumor; sell on the news.
MRO up 18% from January.
The MRO April calls at 18 strike price up 129%.

That is what war profiteers do.

Well, aren’t you pleasant today.

The general idea in investing to to make money. But YMMV.

However, the rise in oil prices is about more than the invasion of Ukraine. Looking at MRO, for example, it was trading at around $11.50 six months ago and then rose to $16.50 by the end of the year (up more than 40%). It was over $20/share on February 1st – up 20% during January.

DB2

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