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Why Oil Is Having Its Most Volatile Week of the Summer

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If there's any industry whose sentiment can go from hot to cold in just the span of a week, it's the oil industry.

That's how this past week has been, with both WTI and Brent – the U.S. and global benchmarks, respectively – down more than 7% since July 11 when prices logged their worst daily drop in over a year.

Naturally, this has analysts and talking heads across the industry in a fit of frenzy. After all, WTI had been on an unstoppable long-term rally, gaining over 23% since the start of the year.

Let them worry.

I'm not the least bit surprised about the recent pullback. With such an incredible run to three-and-a-half-year highs, prices were bound to get overheated and drop below the psychologically important $70 at some point.

Geopolitics have been so front-and-center lately that despite boosting prices to record highs earlier this month, they have now turned on us and dragged prices back lower.

Here's how this switch happened - and why I'm confident oil markets will turn back in our favor...

Oil

Oil Prices and the Iran Deal

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Last Thursday afternoon's modest reversal into positive territory means that crude oil prices have a ways to go yet before an equilibrium takes over.

As of Thursday's close,West Texas Intermediate had eked out a fractional gain, amounting to a two-session rise of 3.3%, and 6.4% for the month.

Meanwhile, Brent had posted a 3.2% two-day rise and a 7.5% gain for the month.

Given its wider use as the bellwether yardstick for oil trade worldwide, Brent often exhibits a greater sensitivity to geopolitics and global market pressures than WTI.

However, the even greater relief is this: since the lows of early 2016, WTI is up 72.3%; Brent is up 77.7%. 

Is this the result of Trump's decision to axe the Iranian nuclear deal (JCPOA)?

To a certain extent, yes.

Yet that impact is more the result of a knee-jerk reaction than it is any tangible correlation...

Oil

Why Renewing Sanctions on Iran Will Cause Oil Price Chaos

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An agreement is an agreement, or so it's said.

Tensions are skyrocketing after Israeli Prime Minister Netanyahu's claim that Iran has violated the Joint Comprehensive Plan of Action (JCPOA) agreement.

This is the deal that was meant to shut down Iran's nuclear weapons program.

Whether Netanyahu is correct or not, it puts the ball in President Trump's court. Remember, he has questioned the JCPOA since before his election.

The talking heads on TV will tell you that canceling the JCPOA and renewing sanctions on Iran will drive oil prices up.

But the truth is much messier - here's what'll really happen...

Oil

Oil Prices Spike as Mayhem Takes Hold

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As I write this (Tuesday, April 10), oil prices are billowing higher.

Both West Texas Intermediate (WTI) and Brent are rising sharply, each up 1.9% for the day before the market even opened.

That means WTI has jumped 4.1% in less than two trading sessions, while Brent has improved by 4.3% over the same brief period.

Now, I do expect that there will be some leveling off as the rise catches some resistance.

However, we cannot underplay what's been happening in oil recently.

With WTI approaching $65 a barrel and Brent already surpassing $70, both have surpassed my estimate of where the prices would be at the end of June.

And this is why...

Oil

The Truth Behind the Recent Oil Price Spike

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For the past week, I've been discussing some of the broader – and more technical – factors in the oil trade.

But my overall conclusion in each of those issues was this…

A rise in crude oil prices was coming, at least in the near term – a conclusion that has certainly come true.

As I'm writing this (Thursday, March 22), the West Texas Intermediate (WTI) price has surged almost 3% for the day and over 5% since the close on Monday, and is up 6.5% in a week – its highest level since the beginning of February.

Meanwhile, Brent has registered equivalent gains of 2.9%, 4.6%, and 6.5%, respectively.

Now, there are two essential reasons why the price improvement is taking place, and both bode quite well for investment returns in the sector...

Oil

Revisiting the "Oil Vega"

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A few years ago, in one of my books ("The Vega Factor"), I coined a phrase to explain the new way in which oil pricing was unfolding, along with the uncertainty resulting from it.

Then, the market was facing rising crude topping $100 a barrel.

Now, the situation finds oil rising into the mid-$60s after a bout of abnormally low prices.

The phenomenon described, however, applies to oil moving in either direction.

I called it "Oil Vega."

Simply put, it refers to the increasing inability to determine the true value of crude oil based on its market price. 

Now, there is a reason why I'm revisiting this phrase now.

You see, I am close to putting the finishing touch on a new investment tool that identifies stocks based on this phenomenon.

And today, I want to give you a sneak peek at one of its main components...

Oil

The Easiest Way to Find the Richest Oil & Gas Plays

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Multiples are one of the most popular "yardsticks" when it comes to finding undervalued oil and gas stocks to buy.

More often than not, that involves a hard look at the multiple of a company's earnings to determine whether or not a stock is fairly valued.

In the case of energy stocks, however, there is a more important multiple you need to understand. Much more important, in fact, and more reliable, too.

I generally use it to target oil and natural gas stocks, although the "yardstick" can be tweaked to apply to power producers, and even coal and uranium miners.

It's a way to cut through some of the fast and loose "games" management can play with its reserves, too, and to get a more accurate feel for a company's booked reserves and its trading price.

Ultimately, my yardstick takes into consideration the extractable reserves a company has in the ground and opens up a window into how that stock should trade.

I've used this measure time and again to bring home market-beating double- and triple-digit wins.

Once you understand how to use this yardstick, you can too.

It's easy - here's how it works...

Oil

Unlike Wall Street, We're Not Running Scared from Oil's Recent Volatility

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As the markets begin to show signs of finding a bottom – with four consecutive positive sessions through yesterday's close – the energy sector has continued to perform weaker than most of the other S&P 500 sectors.

Because of that, analysts have started grasping at straws.

Some are predicting a gradual lowering of prices from current levels…

While others are taking their cues from more immediate production figures, supply levels, and demand estimates.

Fact is, volatility has taken hold of the global oil markets.

After a seven-month period of remarkably low volatility in oil, the last few weeks have been turbulent.

And that has a lot of oil enthusiasts nervous.

However, all of this needs to be put into perspective to understand what's really at work here.

And that's exactly what we're going to do today...

Energy

Why the Middle East's Dream of a Post-Oil Economy Is at a Crossroads

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In a little more than two weeks, Marina and I will once again be traveling to Windsor Castle outside London.

The occasion?

The annual Windsor Energy Consultation held under royal charter.

This year will mark the ninth year in which I have briefed the gathering. The importance of that meeting, and the way in which it galvanizes global energy conversations, will be something we will continue to cover over the next couple of weeks here.

But there is one matter that will be discussed there that I want to bring to your attention today…

It involves a new "energy revolution" that is already sending shockwaves throughout the global energy sector.

So let's take a look...

Oil

The Oil Money Play

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The stock market freak-out hit a crescendo on Monday, with the Dow plunging nearly 1,600 points at its lows – marking the biggest intraday point drop in history.

The Dow fell 1,175.21 points, or 4.6%…

The S&P 500 lost 113.17 points, or 4.10%…

And the Nasdaq Composite dropped 3.78% to 6,967.53…

However, even with Wall Street stocks posting record losses over the past few days, oil prices have not suffered to the same extent.

WTI (the New York benchmark for crude oil futures) was down 2.5% over the same sessions, while Brent (the other and more widely used global dollar-denominated benchmark set in London) shed 3%.

Of course, two days does not a trend make.

But the relatively "less bad" performance by oil gives us some pause.

Unlike earlier bouts of investor angst, this time around, the swoon in oil wasn't about a decline in the broader markets.

Rather, it appears to have been the other way around...