Is the oil bull market dead?

CNBC: Oil's Biggest 3-Day Drop In 5 years.

I'm surprised there was little mention in this video of the supply and demand factor. Yesterday we saw a big build in crude and today a decent build in natural gas. The huge move in oil and natural gas that started early this year was about supply and demand, as a colder than average winter cut into natural gas supplies and pulled on heating oil supplies, which, combined with demand for diesel, pulled up crude prices.

We are now facing the other side of the supply demand equation, the one where supply is starting to build instead of declining. And price wise, neither natural gas nor crude looks like it's ready to make a stand today, they look like they have further to drop. Chart wise, I'm guessing natural gas could pull back to $9.50 and oil to $120, though crude at $110 wouldn't shock me at all. On the other hand, looking ahead further, if we get another cold winter, I think we revisit the highs.

This summer feels like a mild one, and I think back to this quote from a few posts ago:

The question Coxe raises, and one we cannot answer, is whether the lack of sunspot activity in this cycle portends a trend to cooler weather, shorter growing seasons, and increased space heating demands – or is it just a statistical fluke?

Investment Implications

Coxe argues that if the lack of solar activity is not a statistical fluke natural gas would be a ‘pure play' on this event due to the huge amount of natural gas used for space heating in North America . Natural gas is a very efficient and non-polluting heating fuel.

We would tend to agree with his assessment, but note that the incremental use of natural gas as a summer electrical generation ‘peaker plant' fuel may decline if air conditioner loads are significantly reduced.


Pure play natural gas and oil E&Ps are bearing the brunt right now, while big oil (XOM, CVX, COP) and big service (SLB, HAL, WFT) have paused. That suggests people are shedding excess exposure, but holding the core.

SLB reports tomorrow, apparently. How the market trades it will probably be a significant tell.

To answer the title question, while I don't think the bull market is dead, I do think that the huge move this year ate up a lot of our bull's "energy", and was a little too "easy". When it's that easy, it's often a sign that you're about to encounter trouble. Lesson learned.