How Long Will $100 Oil Last?

Crude Oil got there. Oil IS $100 a barrel plus. What does history tell us about the future? How long will plus $100 oil last?  

CL = NYMEX Nearby Crude Oil Futures closing price.

Source: barchart.com

The above is the long term chart of nearby crude oil futures which actually began trading in 1983 (not shown) yet the first time crude closed above $100 a barrel on 2/6/2008 is shown. As one can plainly see, crude has been above $100 for a very short time. Does this tell us anything about today's oil price?

Since it first touched $100, WTI Crude has had 33 runs above $100 a barrel.  Meaning, for 33 periods since 2008, crude traded above $100. The runs lasted, on average, 21 days! The shortest were 7 runs lasting a 1 day, 4 runs lasting 2 days and 5 runs lasting 3 days. The two longest runs were 194 days in 2008 and 110 days in 2013. Here is a quick summary: 

What may be missing from raw numbers are the effects of timing. Looking at WHEN crude traded may give us a clue of what to expect. The following is the list of crude oil $100 runs for "all time"/since it began trading. 

Based on trading through it, I can attest that the first time crude oil traded above $100 in 2008 was a price shock! This is the period crude traded to its all time high above $147 a barrel! This, on top of the financial crisis which, oddly enough, with the collapse of Lehman in September 2008, ENDED the oil rally. The next time we saw $100, the market took it in stride and you can see it bouncing back and forth throughout 2011.

Maybe the return of $100 in 2012 was too much and the rally lasted 81 days in 2012 and 110 days in 2013. So the market bounced back and forth again until 2014 when it finally broke. 

Break it did, beyond all expectations. Falling below $40 a barrel and staying there and more, decimating the energy sector-not to mention the Covid demand collapse to spot market NEGATIVE prices in 2020! 2020 was the bottom and all markets have been rallying ever since. 

For perspective, the 2008 price shock was short lived. The 2011 return to $100 lasted arguably, despite all the bouncing about, until 2014 or 3 years. 

So maybe today's $100 oil is not a shock. If so, if history is any guide, we can see markets bouncing for quite a while. (3 more years?) Or, today's rally, or the entire commodity rally, is predicated on the double whammy of "end of Covid" supply chain strain and war - ominous and unpredictable war. If both ARE resolved, $100 oil can quickly become another distant memory.

Why "cherry pick" these time periods? They are not cherry picked. My free barchart.com account only offered prices starting 2000, and excel formatting worked best with the 12/31 start dates. My spreadsheet is available upon request.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2022 George Rahal

Is Your Gas Station Price Gouging?

Friday, 4/22/22, the nearby crude oil futures closed at $102.07 per barrel. Nearby unleaded gasoline futures closed at $3.286 per gallon.  The gas price is 3.22% of the crude oil price. 2020 thru today, the price of crude is up 70%, but the price of unleaded gas is up 89%. Is this price gouging?

CL=NYMEX June WTI Crude Oil Nearest Futures Historical Price - left axis

RB=NYMEX June RBOB Unleaded Gas Nearest Futures Historical Price -right axis

Ratio x 100 = RB/CL x 100 scaling factor - right axis

Data source: barchart.com

One answer may be found in the ratio of gasoline to oil prices. Until 2022, the ratio looked pretty steady- in the high 2s. This year, the ratio is now above 3%. There may be many reasons for the expansion of this ratio-supply chain, demand and other characteristics-but history may tell a simpler story.

For nearly 20 years the ratio hovered in the 2% to 4% range. The huge 2008-09 rally in crude oil above $140 barely budged the ratio, holding stubbornly close to 3%. In the ensuing crude oil decline, the ratio also held around the 3% range. Only in the price declines of 2016 and the major collapse of 2020 did gas prices stay high with the ratio expanding to above 4% and a spectacular 5%+ (when crude oil went negative), respectively.

Historically, a 3%+ ratio persisted about 40% of all days since 2000. 

Unleaded Gas/Crude Oil Price Ratio 

Frequency Distribution Since 12/31/2000

Today's 3.22% ratio is normal. Admittedly, RB is the wholesale unleaded gas price, but, according to these numbers, your gas station is not price gouging.

Why "cherry pick" these time periods? They are not cherry picked. My free barchart.com account only offered prices starting 2000, and excel formatting worked best with the 12/31 start dates. My spreadsheet is available upon request.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2022 George Rahal

  

First Quarter Wallops Markets-Oil Up 33%

While stocks wallop, commodities woke from decades of hibernation rising 25% in the first quarter of 2022. Shaken by Covid fatigue and the onset of war, oil peaked up 60% at one point, from 2021's close, to end the quarter 30% higher.

CRUDE = NYMEX May 2022 WTI Crude Oil Futures Contract

DJP = iPath Bloomberg Commodity Index Total Return(SM) ETN

GOLD = COMEX June 2022 Gold Futures Contract

SPY = SPDR S&P 500 ETF Trust

BND = Vanguard Total Bond Market Index Fund

QQQ = Invesco QQQ Trust (Nasdaq 100 ETF)

Crude oil led the commodities charge. DJP, a mix of energy, metals and agriculture, clearly shows the effects of inflation.  Gold bulls were disappointed. Stock investors posted losses for the first time in years. Bonds ticked lower on the tails of higher inflation.

Note the above, while representing indexes and asset classes, are all easily investible by small investors. They closely track their intended assets and are good representatives of market conditions.

A single quarter represents current conditions and is not a view of the current outlook. For that, we need to evaluate the medium and even long term market performance. The last three years offer a unique view of markets, including the largest declines and largest recoveries in decades-extreme markets-all compressed in the 2019 to 2022 period!

PRE AND POST COVID

To gain this perspective let's look at the pre and post covid years:

All markets posted gains for the 2019 to present period. While the Nasdaq 100 led the way, oil bested the S&P while commodities showed lesser but still respectable gains.  Stocks were relentless, even shaking off 2019's 50% decline. The oil chart is a bit deceptive as the month-end closes charted here do NOT reflect the daily nor intra-day highs and lows. The NYMEX WTI April 2020 crude oil contract touched MINUS $40.32 on 4/20/20 a day ahead of its expiration. Crude oil traded in low digits for a number of days. 

LONG TERM MARKETS

This 14 year period is defined by the BND start date in 2007, otherwise we could not make year to year comparisons.  And this period is marked by crude's all time high of $147.27 on 7/11/2008 in the August 2008 contract. So, of course, crude oil is off. 

The other major markets are about where we expect them: QQQs lead, SPY next, Gold doing ok, even BND has a return and commods are on the way to their two decades long depression. Eventually though, gold is brought down by the commodity decline. 

OUTLOOK

For one thing the world is now all shook up by not just Covid, but, war, too. 

Maybe the recovery in oil emboldened oil states to flex muscles they haven't had in years. Maybe that emboldened Putin to go to war. As we know from Afghanistan and Vietnam before it, war can last for years. So Covid will pass. We don't know when but that alone should help stocks. 

The initial inflation increase may have been Covid/supply chain related but war may keep a bid on commodity prices. Although, 20 years of Afghanistan war did NOT. 

Regardless, demographics are keeping the US economy going. Job takers are few as the Great Reitrement of the existing aging and prosperous workforce becomes a tsunami. The fast and furious recovery of stock markets in 2020 and 2021 point to strong recovery, again.

Why choose these markets? Why ETFs? Why actual crude and gold futures contracts? Its all about the ease of investment for smaller investors and how well these vehicles represent the markets as a whole. Generally ETFs let small investors do what only large players could do for even less cost than large players. But commodity ETFS for oil and gold do not reflect their underlying markets very well. That's why I use the futures contracts. Today, using "Micro" contracts, even small investors can own crude oil and gold futures responsibly. 

Why "cherry pick" these time periods? They are not cherry picked. This has been such an extraordinary quarter (the Nasdaq is DOWN the most!) I could not ignore it. 2018-present is explained above as a period of extreme market moves-an ideal laboratory for analysis. As for 2007, that again was explained as the first year that the BND traded. To make these analyses valid we cannot change symbols midstream. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2022 George Rahal