A very interesting thing has been happening. Slowly, slowly, oil has started to rebound. Are we in store for more Peak Oil scares ( reality)? Unfortunately, neither I nor anyone else knows where oil is going. What I do know is that oil was one of the strongest commodity movers last week on a relative basis.
From the lows of Feb 19th, oil has made a tremendous move. The question is will it continue? For the week, oil is up approx 10.7%. Seems that many are seeking reasons… maybe it was the result of the FED action and the fears of a weakened dollar or inflation. Reasons are redundant for traders. The fact is oil moved.
The next question is how to put on a low risk trade? As a trend follower, one becomes interested but only if they can put on a low risk trade. There are many gurus who have wagered big on oil this year. Richard Rainwater who sold on the way up has gotten back in the market at the $90.00 range ( possibly prematurely). He purchased Exxon (XOM) stock at approx $75, bought ConocoPhillips (COP) at approx $68, Pioneer Natural Resources (PXD) under $50, BP (BP) as well as Statoil (STO).
Rainwater made billions in his earlier foray into oil. Was he lucky…or were his instincts honed. It is hard to second guess anyone but he surly experienced harsh open trade draw-downs.
On the same tangent, there's T. Boone Pickens and BP Capital. His fund BP Capital has sustained a staggering loss of $2 billion from the drop in oil and natural gas prices. Personally Pickens has lost about $400 million. An interesting question with these losses-- who do you think was on the opposite side of the trade? It is funny no one seems to mention that…
On CNBC, Pickens was repeatedly asked about oil ( after all he is an oil expert) and yet he lost a ton of his money as well as his investors money.
I think what can be simply gleaned from this example is that the fact that crude moves means… it moves. No one one knows if the move will continue or not.
Oh and by the way, I would be willing to bet that those who were on the opposite side of the trade of T Boone Pickens were Trend Followers. They just try to find to find trends and put on low risk trades. They do not know anything more than that. Seems they made alot of money just knowing that.