By: Costas Bocelli — September 30, 2021
These Energy Markets Are Waking Up Again
Markets like WTI Crude Oil (CL), Natural Gas (NG), and Gasoline (RB) were always on the move.
(Not up to reading? Watch the video version below instead.)
Not only were there great opportunities to take advantage of the wild price swings we would see in these markets, but they were critical to the U.S. economy too. So, when they moved big, they tended to drag the broader market with them and draw a lot of attention.
Just take a look at the volatility of CL futures only seven years ago in the chart below. There are 1,000 barrels of CL per contract, so these price movements represent massive amounts of money.
(Click any image to enlarge)
Now, take a look at the volatility of NG futures in the chart below. There are 10,000 Million Metric British Thermal Units (MMBtu) per contract. So, just like CL, the crazy price swings represented enormous amounts of money.
Why CL and NG Prices Calmed Down
The market for crude oil calmed down a lot in 2015 after the U.S. Dollar strengthened, the Organization of the Petroleum Exporting Countries (OPEC) increased oil production, and global inventories had a chance to build.
So, supply ended up outpacing demand.
The natural gas market calmed down after the 2008 crash when hydraulic fracturing technologies helped drillers capture more of the gas in shale formations.
Before then, massive amounts of the gas was simply lost to the atmosphere. Like crude oil, supply for natural gas outpaced the demand, but for very different reasons.
Why CL and NG Prices Are Moving Again
These markets are waking up again.
CL just hit a new 7-year high of $76.98 a barrel in early-July and it looks like it’s on the verge of surpassing that price. Look at the chart below, you can see the recent rally and how the market is testing a significant resistance level here.
NG is approaching a 7-year high. If it can get past $6.50 per MMBtu, then it could approach price levels we haven’t seen since 2007.
Take a look at the chart below.
That’s good news for the Oil & Coal industry group. Unexpected demand for both crude oil and natural gas—after a quicker rebound from both the COVID-19 Delta variant and Hurricane Ida—has tightened supplies.
You can see the Oil & Coal sector sitting all the way in position #1—highlighted in yellow—in the Sector Relative Strength Matrix below.
The Oil & Coal Sector Relative Strength chart is also in a rising column of Xs, which means this sector is outperforming the rest of the market. Check it out below.
There are supply shortages throughout the world. The U.K. is having fuel shortages and China is limiting factories purchases of energy because of supply constraints.
DEMAND is far outstripping supply.
CL futures are in “backwardation” too, meaning front month futures are trading at a premium to contracts further out. So, the market wants delivery now, not in the future.
This is very bullish for energy. Take a look at the CL price table below illustrating the backwardation.
How You Can Take Advantage of CL and NG Now
So, how do you take advantage of these price surges? Let’s look at Range Resources Corp. (RRC).
RRC explores and acquires properties rich in natural gas and oil deposits primarily in Pennsylvania and Louisiana. Roughly 95% of their production is in natural gas, with about 5% production in crude oil. 100% of their sales are in the United States.
In the 2nd quarter of this year, institutions bought $544 million worth of RRC and sold $305 million. Look at the histogram below and you can clearly see the new institutional interest in RRC.
Like NG and CL, RRC had a big bearish to bullish reversal. You can see in the chart below that RRC can move big when these markets move meaningfully. It just traded to $22.08, but you can see the 2014 high of $95.41 below as well.
This stock could easily double or triple from here.
RRC has the kind of potential that Chris Rowe’s CheckPoint Trader strategy is perfect for.
CheckPoint Trader is designed to capture long-term bullish trends that can deliver 10x or more on your investment.
As an example, consider a deep in-the-money Call option instead of a straight stock purchase. You commit less capital, risk less, and have more profit potential.
With RRC trading 22.08, consider the March 17 Calls. They’re currently trading around $6.40 per option—$640. That’s about a quarter of what buying 100 shares of RRC would cost you.
The leveraged returns options bring to your portfolio are critical to its long-term growth. Chris Rowe discussed the power of that leverage last week in a free webinar.
Got options? You should.