Eternal Sunshine of a Spotless Mind on Crude Oil

Ned Davis Research’s energy strategist Warren Pies reviews the first half and issues his outlook for the second. Why investors could benefit from a memory wipe.

Crude oil prices are on the rise today, but energy investors have been on quite a tumultuous ride so far this year. The severe ups and downs have led to excessively negative sentiment. Perhaps investors would benefit from a memory wipe.

United States Oil (USO) has risen 0.95% so far on Friday. Energy stocks, on the other hand, aren’t seeing as much of a lift with Energy Select Sector SPDR (XLE) up only 0.38%.

Ned Davis Research‘s energy strategist Warren Pies, who remains bullish on oil, titled his latest oil note “Oil — A First Half to Forget.” Last Thursday, the EIA reported that U.S. stockpiles for the week ended June 30 was more than 16 million barrels below the five-year average. Pies pointed out that a 15 million plus barrel divergence from the average is a rare occurrence, having happened only six other weeks since the mid-1990s and bodes well for crude prices. The problem: depressed sentiment. Pies wrote:

Returning to the theme of 2017, sentiment remains severely depressed. So far, the market has proven adept at finding the negative underbelly of seemingly positive data points. As each rally fizzles, more bulls capitulate.

More reason to forget the first half. Pies noted that sentiment and price action does not match fundamental data. Technical indicators have eroded and the likelihood of oil making new multi-year highs, implying a more than 30% rally, has diminished, but Ned Davis continues to “see more upside to oil prices than downside.” Basically, they’re cautiously optimistic, which is easier when you don’t remember how brutal the first half was.

Photo by CARL COURT/AFP/Getty Images

Photo by CARL COURT/AFP/Getty Images

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