Crude Oil at 5 years low — Sentiment and News Flow Extremely Negative

Crude Oil has been dropping like a rock over the past few weeks, which leads the total decline of CL1 (the front trading WTI contract) to more than 45% since it was trading at above $100 dollars at its peak in June to $58 today.

This is a historical decline. Not the biggest drop in history (that was in 2009) but still a historical one.

USO — the largest oil tracking ETF — is now trading well under $22 (currently trading at $21.87, while typing this post), making a historical low, below the 2009 crash level when WTI bottomed and bounced off at about $32 (The reason is the roll cost of commodities contracts, and show that buy and hold in futures contract is very inefficient).

Everybody bets on oil dropping, the newsfeed is only negative, and even at one of my clients, a tech shop, the PA knows that it will drop until at least $50 until mid Jan.

Quote from Bloomberg:

“I can see no news that would give any reason to buy oil at the moment,” Christopher Bellew, senior broker at Jefferies International Ltd. in London, said by e-mail.

Another quote from another Bloomberg report:

“It’s a new era,” said Carl Larry, a former trader who is now a Houston-based director of oil and natural gas at Frost & Sullivan 

[...]

Known for his conviction that oil prices will rise in the long term and that U.S. shale drilling is overhyped, Hall — [pej: aka Oil Trading ‘God’] — still sees reasons for an oil rally -- eventually. First he sees crude prices falling further to as low as $50 a barrel before recovering in the first half of next year, according to his Dec. 1 letter to investors.

Based on this, I have decided to bet against the crowd, and opened an initial position in USO @21.90