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Oil Prices, Inflation and Supply Chain Issues Point to More Volatility

by | Nov 23, 2021

There was a lot going on in the market Tuesday…

Oil, natural gas and coal stocks were all down a little in the morning before the bell. And just after I sat down at the desk at 7 a.m. EST, President Joe Biden’s staff announced it would release 50 million barrels from our Strategic Petroleum Reserve to combat high oil prices.

Most people thought that would push the price down — including the president — but us career energy analysts knew y’all were in for a surprise…

And sure enough, you got some surprise volatility in oil stocks.

Source: Bloomberg

Within seconds of the announcement, oil rocketed above $76 per barrel and hasn’t looked back since.

There are three big reasons for that. First, 50 million barrels just isn’t much. In total, it’s just a little over two days’ worth of supply for the U.S.

Second, the barrels being released are mostly heavy sour crude — a type that is produced by countries like Saudi Arabia, not the U.S.

And most importantly, it now provides OPEC+ — headed by Saudi Arabia, by the way — a political excuse to push back the planned production increase of 400,000 barrels per day every month.

That means when we have to buy these barrels back, the Saudi government will make sure they cost a heck of a lot more.

Volatility in Oil Stocks and Beyond

Oil didn’t hog all the action, either, as the remainder of the energy complex rallied like crazy, with natural gas up as much as 9% over Monday’s lows…

Source: Bloomberg

…and our coal stocks joined in the fun, too, rising almost 9% before pulling back.

Source: Bloomberg

If you were able to pick some of these up Friday or Monday, selling some into these rallies is the prudent thing to do.

But Monday’s rip in interest rates and this rip in oil are both being driven by the inflationary impulse of the past year’s epic money-printing escapade. It’s finally working its way out into the market.

And when you add in the ongoing supply chain difficulties — plus the debt ceiling debate looming in mid-December — it means markets are going to be super volatile for the remainder of the year.

That actually provides an opportunity for us…

What that means is we need to keep it simple — like buying anything with positive one- and three-month returns on days when they’ve corrected.

Tuesday, that meant we needed to reintroduce the small-cap Russell 2000 to the watchlist.

Of all the major markets, it’s the only one that’s down on a one-week basis. Moreover, it includes a lot of the “high-beta”— another word for “high volatility” — stocks that have outperformed every other style factor over the past quarter…

Source: Fortune Research

So that’s the one we want to target with this week’s FREE TRADE: the iShares Russell 2000 ETF (NYSEArca: IWM).

Go get ’em on red.

Now if you want to harness volatility directly, there’s no better person to ask than my good friend and Joy of the Trade Head Trader Jeff Zananiri.

He’s perfected a system that capitalizes on changes in volatility — from trough to peak — and has the potential to make winning trades for an entire cycle…

Using only one stock.

You know how much I’ve talked over the past few months on how important volatility is, even outside of oil stocks. Well, this is a great opportunity to learn from someone who is one of the best in the business… 

So just click this link if you want to get in…

And I’ll catch you Wednesday with the weekly wrap-up.

All the best,

Matt Warder

Fortune Research

WRITTEN BY<br>Matt Warder

Matt Warder

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