BLOOMBERG BUSINESS

Oil Ignoring Bad News Usually Means a Rebound Is Near, Says Jim Rogers

 

By Jonathan Burgos
October 1, 2015 — 8:10 PM EDT / Updated on October 2, 2015 — 1:27 PM EDT


• Rogers sees decline in U.S. output helping stabilize prices
• Investor also sees opportunities in agricultural commodities


Oil is holding near $45 while the bad news keeps coming. For investor Jim Rogers, that’s usually a sign a
rebound is near.


The Organization of Petroleum Exporting Countries is still pumping near-record amounts of oil,
China’s imports have slowed and U.S. crude stockpiles remain about 100 million barrels above
the five-year seasonal average. Yet, U.S. benchmark prices have held steady for more than four
weeks since plunging to a six-year low at the end of August.


“When there’s bad news and something doesn’t decline, it usually means it’s at a bottom and
will be turning,” Rogers, who correctly predicted a commodities rally in 1999, said in an
interview in Singapore on Thursday. “Whether we’re at a turning point or not, I don’t know yet,
and I’m watching this very closely.”


A persistent global glut of crude that’s cut prices by half over the past year has prompted banks
including Citigroup Inc. to predict further declines, with Goldman Sachs Group Inc. warning oil
may drop to as low as $20 a barrel. The losses, driven by a U.S. shale boom and OPEC’s strategy
to sustain output to defend market share, has led a slump in commodities that’s roiled currency,
equity and debt markets across the world.

 

 

West Texas Intermediate crude futures in New York plunged to $37.75 a barrel on Aug. 24, the
lowest intraday level since February 2009. They’ve since averaged $44.99 and haven’t closed
below $44 from the start of September. The November contract dropped 33 cents to $44.41 at
12:39 p.m. on Friday.


While U.S. inventories remain abundant, the nation’s production has slipped in seven of the past
eight weeks and drillers have idled more than half their rigs. Those cuts will help stabilize prices,
Rogers said.


“Some companies are stopping drilling and production is actually going down in the U.S. now,”
the chairman of Rogers Holdings said. “Shell is canceling some drilling. All of these mean
supplies will be going down in the future.”


Rogers also said he was watching Glencore Plc, whose shares fell by a record on Monday in
London amid concern over its debt load. The commodity producer and trader has since recovered
some of the near-30 percent loss after the company moved to reassure investors and as banks
including JPMorgan Chase & Co. said the slump left the stock undervalued. Citigroup wrote that
management should consider taking the company private.


The Standard & Poor’s 500 Index eased declined as energy and raw-materials shares rallied with
metals. The S&P 500 was little changed at 1,922.59 at 12:41 p.m., after a three-day advance.
Some of the most beaten-down oil and gas producers rallied Friday. A Bloomberg Intelligence
index of North American independent exploration and production companies climbed 2 percent,
led by Bonanza Creek Energy Inc. and Halcon Resources Corp. The index is down 36 percent in
the past three months.


Agriculture Opportunity
“It might be a good trade if you go public at a high price and you buy it back at a depressed
price,” Rogers said, referring to Glencore. “That might be a wise thing to do. On the other hand,
they have a lot of debt so I don’t know if they could do that.”


With the Bloomberg Commodity Index, a measure of returns from 22 components, plunging to
the lowest level since 1999 in August, Rogers also sees opportunities for investors in other raw
materials.


“Agriculture is probably where the best opportunities are,” he said. “I’m not buying rice and
sugar at the moment but some of these things are down a lot from their all-time highs. There’s
potential opportunities out there.”


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.