Oil

Here again are some of the client queries we have had over the last month.

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From a precise timing standpoint, it may still be premature to bottom guess the oils, but it probably is time for big portfolios to start accumulating. The recent waterfall decline in oil prices is nothing new. A number of similar declines have taken place over U.S. economic history. The future? Very long-term, oil is not a very attractive industry.

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The last of the tactical “Oil Patch Recovery” play initiated in early 1983 has been closed out. What now? We expect oil stocks to be underperformers for at least six months. $25 crude prices would not be a surprise in 1984. And on a long-term basis, we still expect oil prices to erratically decline in real dollars for the rest of the century.

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The popular market averages recorded little net change over the last five weeks even though the unweighted price indices have continued to move higher. We continue to believe the market is on pretty shaky ground near term.

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We have increased our Oil Patch holdings by 5%, now 14% of Equity Portfolio assets. The recent spot oil price trends now seem to confirm our preliminary conclusion that crude price declines are over…..at least for a while.

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The most significant development since the last issue has been the renewed massive downside pressure on the oil stocks. Is it time to finally start bottom fishing in oils?

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While a move of 15%-20% more from current levels would not be surprising, all things considered, we have decided not to partake of this “opportunity.”

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Energy market weight now down to 20%, from 32% in late 1980. Historic weighting has been 17%. The worst part of the “round trip” may be close to over. Good rally expected in the next 90 days, but new long-term leadership is not in the cards.

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