Interesting excerpt from a newsletter put out by Christian DeHaemer on the coming rise of oil prices and how to position one's self accordingly.
Reason #11 ... "Fickle CBOE traders. The WTI contract is the world's most heavily traded energy contract. To give you an example, on February 10, 2016, 1,609,771 contracts were traded. Each contract represented 1,000 barrels each. That day 13 million barrels of actual wet oil were bought and sold. This means that 123 paper oil barrels were traded for every one actual barrel produced. That's ridiculous. And we know from past experience that when the trading herd reverses, it does so en masse and with great vigor. The short squeeze will be huge as stops are hit and margin calls blown up.
The upshot is that there has been less investment in upstream over the last two years. There have been no new big oil discoveries. China and India are increasing demand. Saudi Arabia and Russia have no more room to expand. The chart has bottomed. Market sentiment will change on the next “unexpected” global event with an epic short squeeze that will send oil prices much higher.
The best way to play this is by investing in small global oil companies with strong balance sheets and a mother lode of hydrocarbons..."
