Commodities are, for the most part, performing well so far in 2017. However, you would never know it by looking at the energy complex.
Crude oil dropped into bear-market territory last month. It fell more than 20% from the peak of $54.01-a-barrel reached late last year. Natural gas is performing even worse.
Even with an OPEC agreement in place to limit global oil production — in hopes of boosting prices — oil hasn’t gotten much of a lift.
In fact, at a recent price of $48, crude has gained less than $2 since the OPEC deal was put in place last year.
In a previous article I wrote a few weeks ago, I pointed out that energy-sector bearishness had gotten so thick you could cut it with a knife. And that energy-sector stocks are dirt-cheap as a result.
From a contrarian perspective, that’s a bullish sign. One that tells me energy is overdue for a rebound because the selloff is overdone.
Since then, oil has started to rally.
But energy bulls are about to get rewarded for their patience, because I see much more to come on the upside for crude prices.
We’re finally beginning to see some fundamental and seasonal catalysts that should propel oil prices and energy stocks higher in the months ahead.
First, U.S. crude oil inventories have declined steadily in 12 of the last 14 weeks, as you can see above. This means demand is picking up. And oil demand should be almost 2 million-barrels-a-day higher in the second-half of the year compared with the first six months, per OPEC estimates.
What’s more, domestic refineries are running strong and implied demand for gasoline has hit near-record levels. This tells me that oil prices likely hit a low at the end of June.
Second, as you can see below, our E-Wave model forecasts a cycle low and upside turn for crude this week, followed by a substantial rally into late August. Then after a brief pullback in September, expect oil to surge higher again into October.
The two-step rally should propel oil, and energy stocks, substantially higher in the months ahead.
In addition to the intensive cycle analysis that he pioneered, my friend and colleague Larry Edelson was also a keen student of history. Larry always insisted on searching for confirmation of his cycle forecasts using both technical analysis and extensive historical validation.
And taking a closer look at historical seasonal patterns in markets can be especially useful at uncovering key turning points like right now.
Third, sure enough, confirming our E-Wave cycle analysis, the seasonal pattern for crude oil is moving into a bullish phase over the next several months.
In fact, over the past 30 years, crude oil prices have typically trended higher starting in late summer. They usually make a seasonal high in early October … right on cue with our E-Wave cycle forecast.
Over the past 15 years, the seasonal peak in crude prices tends to come a bit earlier on the calendar, in late August. But oil still has a strong tendency to reach seasonal highs again in October.
Bottom line: We’re just coming into the seasonal sweet spot for light-sweet crude right now! You can expect higher prices for oil and natural gas, plus a strong rebound in energy-sector stocks, in the months ahead.
Good investing,
Mike Burnick
