If Billionaire Oil Traders Are Right About $80 Oil, Buy This Dip

Worth a read for all crude oil traders.This article was published on 3Aug 2016 by BRYAN RICH (Opinions expressed by Forbes Contributors are their own.)

As we’ve said, oil has been quietly sliding over the past three weeks. It closed yesterday more than 20% off of the highs of the year.

And we looked at this chart and said, this divergence has hit an extreme, something has to give.

Source: Forbes Billionaire’s Portfolio, Reuters

Yesterday it was stocks. Today it was a sharp bounce in crude–up 4%. The oil “sharp bounce” scenario is the safer bet to close the gap on the chart above.

Alternatively, oil under $40 puts it in the danger zone for the global economy and broad financial market stability. With that, we had a close in the danger zone, under $40, yesterday. But it may turn out to be just a brief visit.

If we look at the longer term chart, the 200-day moving average comes in right in this $40 area ($40.67). Again, we had a close below yesterday, but a close back above the 200-day moving average today.

Sources: Forbes Billionaire’s Portfolio, TradingView

For technicians, two consecutive closes below the 200-day moving average would create some concern for this post-oil price bust recovery.

In that case, many companies in the struggling energy sector would be back on bankruptcy watch. But the global economic recovery can’t afford another bout with weaker oil prices, and the ugly baggage that comes with it (oil company defaults, which would lead to financial system instability and sovereign defaults).

Two of the best oil traders in the world billionaire hedge funders Andy Hall andPierre Andurand have said they think oil will trade to $80 by next year. Andthey’re beginning to get a lot of company (big time oil guys) with similar forecasts. Billionaire energy trader Boone Pickens, also a big oil bull who thinks we see $80 by next year, recently interviewed the former President of Shell Oil, John Hofmeister. 

Hofmeister thinks all of the drilling and production shutdowns and layoffs will soon drain the oil surplus, and give way to a sudden surge in oil prices, while oilcompanies scurry to hire up and reverse course on the retrenchment that’s taken place across the industry.  He thinks we see $80 oil this year.

If the best billionaire oil traders in the world are right about oil, and we see $80 in the next year, this dip is a great buying opportunity (for the underlying commodity and energy stocks).

Tomorrow, we hear from the Bank of England. The expectations are that the BOE will cut rates to support economic activity in the face of Brexit uncertainty. But there’s also a decent bet being wagered that the BOE will return to QE, a second post-global financial crisis bond buying program. History tells us that, in this environment, central banks like to save bullets for the moments when crisis and fear is peaking. With that, the BOE may disappoint tomorrow. If so, it could pour some gas on the nascent rise in market rates that started yesterday in Japanese, German and American ten-year yields.