Every once in a while in the Port Phillip Publishing office, the entire editorial group get together to talk about whatever big investment idea they’ve been individually researching.
Preferably something off the radar.
The idea is to critically test the validity of the idea with a bit of scrutiny, while at the same time throwing some ideas out to the rest of the group.
There’s usually about eight of us in the room, plus around four people phoning in from further afield.
One by one we divulge our pet projects.
I admit, some of the ideas put out there are pretty left field. The range of investing opinions stretches from ‘a coming depression’ to ‘a resurgent China boom …’
But that’s the idea of the pow-wow.
You don’t have to agree with all of it. Or any of it! But it’s a good intellectual exercise, and a way to let others spot the gaps in your own thinking.
Last September at one of these meetings, one of my colleagues threw out an idea that immediately resonated with me.
It was to do with oil. A commodity that could be the story of 2018.
And boy oh boy has he proven to be correct so far…
Oil’s stealthy rise
Some of you will have read Greg Canavan’s work over the years.
I’d best describe it as a ‘strong opinions, weakly held’ methodology.
In other words, he has well thought out ideas, but he always admits he could be wrong and therefore is quick to make sure the price action agrees with his hypothesis as whatever story he is following plays out.
In September’s meeting, Greg put forward a bullish argument about oil for 2018. To say it was compelling is an understatement.
I’ve been following the price action on oil closely myself and so far, it’s playing out perfectly.
Check out this monthly chart of oil:
Source: Incredible Charts
[Click to enlarge]
The price hit a three year high this month and is up around 40% from when Greg first started talking about his research.
Now at the time Greg’s idea was so good, we started promoting it last year. But to be honest the response from our readers was generally underwhelming.
The sad fact is that when an investment opportunity is unloved, un-hyped and generally off the mainstream radar, no one wants to know.
But the reality is that it’s unloved sectors where you can frequently make the biggest returns.
The rise in oil has corresponded with a fall in the US dollar. As discussed yesterday the US dollar weakness is more than likely to remain throughout 2018.
And that’s longer-term bullish for not just oil, but for all commodities. And in turn the Aussie economy, which relies on strong commodity prices.
Have you missed the boat on oil?
Anyway, I asked Greg, given the run since his perfectly timed call in September, if the oil opportunity was still there for investors.
Here’s what he had to say:
‘As you know, I’ve been bullish on oil for a while now. But at around US$70 a barrel, I think it’s much closer to fair value than what it was when I was recommending oil and gas plays back in August/September last year.
‘The charts suggest a short-term top might be in.
‘But keep in mind the upward trend is now well established. Markets tend to go from undervalued to overvalued. We’re not there yet with oil. Sure, the market should correct over the next few weeks or months.
‘But the trend should also continue. So assuming there is a pullback, I’d expect to see oil prices go on to make new highs above US$70 a barrel.’
Greg’s been bang on with oil so far. So, I’m listening to him carefully here.
The oil price is always affected by two things. Economic growth and the value of the dollar.
Despite the recent charge from the renewable energy industry, perhaps the death of oil has been greatly exaggerated?
Other analysts are now joining Greg’s view.
After three years of gloom, the $100 number is finally starting to resurface in the forecasts of market analysts.
Bloomberg analyst Julian Less noted yesterday that ‘a slump in new production outside the U.S. shale patch in 2019 could help to send Brent crude briefly back above $100 a barrel next year, according to London-based consultancy Energy Aspects.’
The International Energy Agency also has a 100 number in its latest outlook, published Friday.
It sees global demand exceeding 100 million barrels a day for the first time in the fourth quarter of this year.
If they are all right, any near term pullback could be a great buying opportunity for ready investors.
Editor, Money Morning