August 28, 2013, 11:18 AM
Oil markets got a bit of a shocker Wednesday from a SocGen prediction that Brent UK:LCOV3 +1.09% could reach $125 a barrel in the coming days in connection with a U.S.-led retaliation against Syria. And if there’s a big regional spillover from this, SocGen says $150 Brent could be not far off.
But the investment bank isn’t the first to the game on a bullish oil call.
Yves Lamoureux, president of Lamoureux & Company, a market advisory firm based on behavioral economics, set a new price target of $140 for WTI crude CLV3 +1.07% about two weeks ago. Unlike SocGen, his call has little to do with the Syrian conflict.
Lamoureux backs up his oil call with these three reasons:
- Dollar weakness. He sees new lows ahead for the dollar and is bullish on the euro and the yen. (Oil is priced in dollars, so weakness in the greenback pushes commodity prices up.)
- Economic growth that’s stronger than the numbers are telling us.
- Oil companies have underestimated higher demand and will have to cover massive short futures contracts.
“The consensus appears to think that peak oil is dead. We think they are in for a shock and it does reflect in my behavioral metrics, that no one is really looking for oil to head up. For sure, oil stocks have been a huge disappointment over the last two years. We had avoided them as energy was too much on the radar after bouncing back from the crash. But this is a much different period ahead,” says Lamoureux.
Higher oil will affect economic growth in 2014, but then it will pick up again in the fourth quarter of next year, mostly in the U.S, he says. And he’s sticking to his call beyond the Syrian conflict.
“Oil has transformed itself from a supply demand driven commodity to a financial asset driven investment. There is way too much money being sloshed around not to be attracted to any asset with a positive momentum. This, in fact, has been the prime source of overstretched markets,” he says in a monthly letter to clients that went out August 15, when he set the $140 oil target.
Lamoureux says money managers worldwide have been pretty universal in the belief that oil will go down because of the world economic slowdown. So they are, in effect, very underweight in energy sectors in global portfolios. Those are behavior mistakes and they’ll be corrected soon with managers buying back to neutral energy-weight plays, he says. Investors get conditioned by what they read and the news, and seem to have trouble moving outside that box. When he sees those nuances at work, he says he knows he’s in “the right camp.”
Lamoureux does have a few calls under his belt. He was dubbed the “bond and equities guru” by blogger Planet Yelnick for correctly calling back in Oct. 2009 that the yield on the 30-year bond would fall to 2.5%. He also called the gold crash this year, the bond crash and the equity rally. Read his latest predictions on bonds.
Now for the non-believers. Reformed Broker’s Josh Brown says trying to predict the price of oil is akin to “counting the jelly beans in a mason jar.
“No one can do it in real life, but someone does get lucky every once in awhile. Besides, even if they could guess the price to which oil would ultimately rally, they have absolutely no chance at also forecasting how long it will remain at that price, which is actually the only thing that matters from an investing or economic impact standpoint,” says Brown.
– Barbara Kollmeyer
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