Getting Itchy

The Waiting is the Hardest Part

Tom Petty said it best — the waiting IS the hardest part.

We couldn’t be seeing more bullish indications from oil — really. Demand continues to rise in this country, now exceeding pre-pandemic levels in 2019.

Supply remains constrained here in the US, where $70 crude oil hasn’t (for a change) created a mad rush to pump oil in Texas and elsewhere. Drilled but uncompleted wells (DUC’s), the measure of ‘reserve’ shale oil out there, continues to disappear at a very fast pace.

Supply also hasn’t loosened up much overseas either, where OPEC+, despite releasing some limits on supply still hasn’t taken much advantage of it. (Saudi Arabia and the UAE are notable exceptions). In fact, inside of OPEC+ there are indications that members couldn’t pump much more oil anyway — Nigeria is in a secular decline from years of civil unrest and corruption, and Bernstein suggests that the totality of reserve barrels from ALL of OPEC is less than 4 million.

That may still sound like a lot to you, but believe me — historically speaking, that’s a thimble-full.

Shall I go on?

OK - inflation is rampant. Virtually every commodity is tearing to the sky - Coal in China, copper, zinc, aluminum. And natural gas is Europe is now selling at an equivalent of $100 a barrel.

Can oil be far behind? No, it can’t.

So -- what am I waiting for? Why aren’t I buying (and recommending) oil stocks hand over fist here? I’m waiting for some clarity - from other factors far removed from OIL.

The US remains the hot spot in the world for Delta infections and deaths from it. The latest chart from the CDC indicates, however, that we may have reached the peak of infections - and Biden’s vaccine mandates have to help that rate to drop even faster.

But the Federal Reserve is a different story. They’ve indicated that they’ll begin tapering bond purchases in November by $15 billion a month. This may not scream of rising interest rates, but it IS the first time, in a very long time, when the Fed is twisting the spigot on the money tap towards OFF as opposed to ON.

I think the first time that happens, it will have some significant effect on markets. Will it cause a 10% or 20% or bigger drop? I don’t know. But before I yell an ‘all-clear’ signal, I just have to wait for that.

It’s tough to stay disciplined here - because I’m itchy. I’ve got a lot of cash on the sidelines waiting for a dip, and I’m not comfortable having so much of my investment capital in cash. I’m a lazy bastard, and I like my money working for me, a lot more than I like working for me.

The waiting really is the hardest part.

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