Tags: Dow | Dennis Gartman | bullish of oil | futures

Dennis Gartman: Worst Is Over, Time to Invest in Crude

Dennis Gartman: Worst Is Over, Time to Invest in Crude
(Dollar Photo Club)

By    |   Wednesday, 07 October 2015 12:38 PM

Dennis Gartman, Publisher of The Gartman Letter, recently made a timely bullish call on oil, almost coincident with a report by Goldman Sachs that made the case for continued weakness.

Tuesday on CNBC, Gartman provided an update of his views, beginning with his analysis of the term structure of futures.

This refers to the state of prices over a period of several months, whether they increase each month to reflect the cost of carry, as would be expected, a so-called contango pattern, or whether they show an unusual pattern in which the later months are cheaper than the near months, which is called backwardation.

Gartman finds that the contango has narrowed, because “crude is no longer bidding for storage as it was a mere six or seven weeks ago.”

Gartman noted that whereas the contango had been $8.50, it has narrowed to only $5. He concludes that this pattern reflects “either greater demand or lesser production, or both – I think that’s what’s going on.”

He sees the oil price as sketching out a trend from a panic low, some sideways movement, followed by an upside breakout. Therefore, “I think you’ve seen the lows.”

Melissa Lee probed as to just how bullish Gartman has become, referring to a “bullometer” she has constructed that has a scale of 1 to 10.

This writer would recall that John McLaughlin would present this as one meaning not bullish at all, while ten would represent “metaphysical” bullishness.

Gartman responded that four days ago he would have said “8,” but the recent price action causes him to pull back to “5 or 6” after “a huge run today, a big run yesterday.”

He does not recommend buying oil futures or stocks at this point, but rather, Gartman alerts viewers and readers that “on any small correction, any one- or two-day correction, you should be a buyer.”

Karen Finerman asked whether the recent price action showed any technical features “that would put a floor under this,” in other words, support.

With some reluctance Gartman pointed to a decline in rig counts, with the caveat that he is not a big follower of this indicator, “but everyone else wants to believe that, and rig counts have fallen dramatically. It doesn’t really mean anything, because we’re still producing a lot in the Bakken.”

Gartman added that based on 40 years of experience, “Sometimes you just need to have something to hang onto, and that’s something for the public to hang onto – rig counts have fallen, and they’re going to fall further.”

Steve Grasso pointed out that when Mexico hedged its production at $49, he had predicted this would be the top in oil.

He asked whether, given that the Chinese markets are closed for a week, it would be “prudent” to wait until that market comes back before buying oil equities. Gartman disagreed, and this gave him an opportunity to say that, “the world sort of changed on Friday afternoon.”

He advises that even slower growth in China, from 12% down to 7% “is still a big impact, because the Chinese market has grown.”

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Robert-Feinberg
Dennis Gartman, Publisher of The Gartman Letter, recently made a timely bullish call on oil, almost coincident with a report by Goldman Sachs that made the case for continued weakness.
Dow, Dennis Gartman, bullish of oil, futures
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2015-38-07
Wednesday, 07 October 2015 12:38 PM
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