Energy investors who had no idea why the sector performed so poorly are now better informed. Money managers in Brent futures hold short positions that are more than those held by longs. This is the first time on record that this happened.
The short bet is paying off. In December, OPEC+ may increase its planned output of oil production. It would undermine its pledge to hold oil prices at $100/bbl. The flood of supply is a strategy for Saudi Arabia to take back market share. The action will hurt energy stocks. This includes EOG Resources (EOG), Exxon Mobil (XOM), Devon Energy (DVN), ConocoPhillips (COP), Baker Hughes (BKR), and Halliburton (HAL).
Last week, China announced an aggressive stimulus to weaken its real estate slump. It reaffirmed that it would take steps to achieve a 5% GDP growth rate. However, WTI crude prices did not bounce back. This suggests that markets are skeptical that China’s centrally planned economic approach will not succeed.
Be Skeptical
The bears are too comfortable with the speculation that OPEC would abandon a $100/bbl target. Global energy demand is healthy and growing, especially when warning signs of a recession are absent. Gold, silver, and copper prices are rising, leaving oil as an outlier to inflationary trends.
