Commodities have had a heck of a bear market. The low cost of oil and natural gas is due to abundant shale gas and shale oil supply making the US an exporter for the first time since the seventies. This in turn caused energy dependent industries like mining and agriculture to be more cost efficient, creating higher output in the mines and on the fields and pushing prices of their products down. For this overview I used a basket of Natural gas, Wheat, Corn, Soybeans, Copper and Oil. I gave Oil and Copper a double weighing because Oil just dwarves all other commodity markets and for copper because I did not find a decent chart for other base metals like Iron or Zinc. What we see is a descending wedge that is going to go in its final down move, testing the level of the 2004-2005 winter. After that I think the time will have come to move up again due to production cuts at these incredibly low commodity prices. The oncoming bull could see prices take us as high as 2014 levels and I would then anticipate that bounce backs in energy stocks would fuel a final blow off in the stock markets prior to the reality of having to pay higher costs for basic commodities sets in and the market comes crashing down again.
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Well this has been a pretty good prediction so far if I may say so myself. So a small retraction is already underway and looking at the big daddy Oil, I would guess it will retract to under 32 dollars. When this happens I will personally buy more of XOM, RDSA, EOG and maybe BP. Expecting to be able to go +200% in 2-3 years and bag some dividends along the way.
Well we have arrived.
Long term, a bull market awaits.
I have completed my acquisition in oil majors and some natural gas companies.
Main holdings Shell, Exxon, Chevron and Southwestern
ettaki
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very good view from you
alkador
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Interesting chart, but why do you thing that such low prices of oil and especially of natural gas will remain. Many shale gas companies shows significant loses during last years and they are in almost bankrupt situation. Look at the financial reports and market capitalization of Chesapeake Energy and Southwestern Energy. If those companies became bankrupt we would see a spike of natural gas price, which is at many years bottom.
fatjohn
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@alkador, prices can move quite fast and can stay irrational for a while. Perhaps one of these companies do go bankrupt and its resulting decline in output then fuels the rebound. Something needs to happen to the supply and demand balance though. We have both the influence of shale gas and oil which made supply abundant as well as the green energy movement where solar and wind are finally coming of age being put online in impressive quantities and off course now we have China who's economic output is severely hampered by the Coronavirus. It doesn't make sense in these circumstances that commodities would already make a comeback. I expect to pain to last at least till the Chinese quarantine ends. However I have taken some small positions already in natgas companies (antero resources) and intend to double down if a competitor files for bankruptcy. Because I think a global recession only comes after commodities have gone through a squeeze.
Long term, a bull market awaits.
I have completed my acquisition in oil majors and some natural gas companies.
Main holdings Shell, Exxon, Chevron and Southwestern