Bulls Beware: A Dark Cloud Is Forming Over Oil Markets

Bullish sentiment appears to have returned to the stock markets with a vengeance. In a historic rally that has taken even die-hard bulls by surprise, the S&P 500 has managed to claw back all of its 2020 losses, taking just 53 sessions for the index to fully restore the nearly $10T in value it shed in an epic bear market. The oil markets have been nearly as impressive.

After entering negative territory for the first time in history, U.S. WTI prices have briefly touched $40/bbl amid record production cuts and an uptick in global demand. Oil and gas stocks have doubled from their March 23 nadir, marking a sharp reversal from the precipitous drop that wiped out nearly two decades of gains.

There's no shortage of bottom fishing opportunities in this market, with shares of bankrupt or near-bankrupt shale companies including Whiting Petroleum (NYSE: WLL), Chesapeake Energy (NYSE: CHK), California Resources Corp. (NYSE: CRC) and Valaris Plc (NYSE: VAL) as well as offshore drillers Borr Drilling Ltd (NYSE: BORR), Noble Corp.(NYSE: NE), Seadrill (NYSE: SDRL) and Transocean (NYSE: RIG) recording triple-digit gains over the past week alone.

But analysts are now saying investors need to pump their brakes.

A cross-section of Wall Street has warned that there's too much irrational exuberance in the markets, and the oil price rally is not fully supported by fundamentals.

Source: CNN Money

Watching the Crack

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