Gartman Turns Bullish On Oil

There has been a distinct shift in sentiment when it comes to oil this morning: after plunging 22% from its February highs, many commentators are suggesting that the bottom is finally in and that it is time to turn "contrarian."

One among them is GS Banque's Loic Schmid, who posits three ideas on why oil is weaker:

  • Is it the hedge funds? They have massively cut back their net exposure.
  • Is it supply? There is currently too much output.
  • Is it demand? Recent US macroeconomic figures have been rather disappointing.

Which prompts him to ask if this is the time for a logical bounce, as oil at $42.50 is a problem for the industry and OPEC, and shows that we are currently close to the bottom of the range and technical indicators suggest that oil is oversold, noting that "we would not be surprised if OPEC trims output in the next few days..."

For now OPEC is not budging, because as Bloomberg reported overnight, discussions on Tuesday at the OPEC, non-OPEC Joint Technical Committee focused how to deal with resurgence of Libyan and Nigerian crude output, rather than deepening production cuts by other members.

That said, another factor, however temporary, may be Tropical Storm Cindy, which will likely mothball US production for at least a few days, leading to several million bbls in production losses.

Which leads us to the point of this post: having been bearish (and correct) on oil for the past few weeks Dennis Gartman (who not that long ago predicted that oil would not rise above $44 again in his lifetime), has just turned bullish on oil.

From his note:

CRUDE OIL PRICES CONTINUE TO PLUNGE, but we begin this morning noting that Tropical Storm Cindy is making landfall along the Texas/Louisiana border, and although she is only a tropical storm and is not a hurricane she’s forced some of the oil and nat-gas operations in the Gulf of Mexico to be shuttered in. She will pass northward and eastward today, leaving a great deal of rain behind, but likely causing no damage of any sort to these operations.However, Cindy does raise everyone’s awareness that the “Hurricane Season” has begun in earnest with another “disturbance” shaping up to the west of the Caribbean  Islands that bears watching.



That said, we move on by making the following rather definitive statement for we’ve ended our comments on the energy markets for the past two or three weeks with the statement that “Strength is to be sold; weakness is not to be bought” and have added even later in our commentaries that “We trust we are clear.” This morning, given the myriad downgrades that the energy stock analysts have put forth in the course of the past several days and given the decided one-sidedness of the psychology, and given the severity of the recent weakness we think it is wise to say that for at least a while strength is not to be sold and that for a while weakness is indeed to be bought.


That does not mean that we have suddenly turned bullish of crude oil and nat-gas prices for clearly we have not; but aggressive selling is to be avoided for a while and we can make the case that nearby WTI, now having fallen for five weeks in a row and having falling precipitously, could easily bounce back toward $46-$47/barrel. That may seem optimistic, but we must remember that nearby WTI was trading $47/barrel only two weeks ago!

For oil bulls, this may be good news...  or not so good news.