Imminent Commodity Pullback Should Offer DBE Buy Opportunity

With crude above $100, and an overbought commodity situation across the agriculture and energy ETF space, a pullback is all but imminent in the short term. When this pullback occurs, there could be a nice opportunity to get into PowerShares DB Energy Fund (DBE), as the nondiversified energy ETF could benefit from the weather pattern in the front end of March.

Yes. we are approaching the end of northern hemisphere winter with a favorable supply situation, and yes, daytime temperatures in New York and Boston are likely to get into the low 50s (again) next week, but a stretch of cool air looks to be moving into the US that will keep demand relatively strong from Chicago eastward by the end of next week, leading to daily low temperatures up to 20° F below normal; more importantly, these temperatures can be between 20° and 30°F below the temperatures for the same time last year.

The table below from the Weather Trends International weekly energy newsletter shows the March HDD forecast as compared to last year, and a cool bias is evident. Fundamentally, I share the same opinion as many Seeking Alpha authors, as DBE and others may be overvalued at current levels, but given recent volatility in the energy complex, a well timed entry could be a nice opportunity for a short term weather driven play.

click to enlarge

Comments

[Georealist]

Overbought..or under Supplied? We've heard several old saw rationales for oils $90..and then $100 barrier busting. The simple fact of the matter is...there is a real and persistent difficulty in supplying the market with anything over 87 million barrels a day...and it is now years deep into this ceiling. My take..I'd look very hard at nat gas and leave oil alone. Any extended correction would simply be a blessing for serious investors who want some kind of energy investment insulation against the very tight (and frightening) supply years ahead.

[michaelferrari]

Most certainly overbought. There is no good reason, even with a weak dollar, weather impact and geopolitical premium built in, that oil should be at these levels. And look at the supply sector represented. All are in a healthy stock situation coming out of n.hem. winter - looking forward, demand will likely be what was expected for months, so we are not looking at unexpected demand increases through June. The supply outlook that is referenced is not looking years ahead, but months.