by Nico Isaac
Updated: June 15, 2017
Some days, life seems to be 1% doing, and 99% waiting. The DMV, the deli counter, the carpool lane, the customer service phone line with that mind-numbing "muzak" stuck on an endless loop. We do it because we have no choice.
But what about the world of finance? Must investors and traders wait on some fundamental catalyst to show the way of prices?
Take, for instance, crude oil. Back in May, many oil investors took a number and sat patiently on the sidelines in anticipation of a key, May 25 OPEC meeting in which members would decide whether to extend its price-supportive output cuts.
Wrote one news source, before the meeting:
"Investors await OPEC. I think the market is holding its breath ahead of the meeting tomorrow. We're anticipating a nine-month extension of the supply cuts and prices should get a little bit of a bump if that's what they agree to." (May 24 Bloomberg)
Guess what happened? OPEC delivered on its 9-month extension. Only instead of a "little bump," oil prices suffered a big slump. Said the experts, the cuts weren't "deep enough."
"Oil prices plunge nearly 5% on disappointment in OPEC's production policy." (May 25 CNBC)
So, in a nut shell: Oil investors waited on a key OPEC meeting that, once resolved, had the opposite effect on prices as expected. And I thought hold muzak was painful!
Here's the deal, dear readers. Crude oil investors (heck, anyone involved in markets, really) don't have time to be reactive to news events which may or may not have the desired impact.
There's only one way to seize opportunities, and that's to be proactive -- to show up to the market before prices turn.
Let's go back to that May 25 OPEC meeting that seemed so key. Well, on May 19 and May 22 -- days ahead -- our Energy Pro Service editor Steve Craig presented a near-term outlook for crude oil. One that would likely unfold no matter what OPEC decided. Steve wrote:
"While OPEC is likely to dominate the headlines through the May 25 meeting, the rally should prove corrective and set the stage for further decline regardless of the outcome. From a near-term perspective, there's nothing to suggest that the advance has ended. Trade below 49.90 (50.22 basis July) would offer the first hint that a top of some magnitude is in place."
The next chart shows the magnitude of crude oil's selloff to six-week lows that followed:
Make no mistake: There's always going to be a "key" OPEC meeting on the horizon. But having insight into where crude oil prices will go next is right here, on the energy market's price chart.