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

Oil Producers Moving to Balance Production, Demand
  • 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.

Jim Rogers
Jim Rogers
Photographer: SeongJoon Cho/Bloomberg

“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.”

For more, read this QuickTake: Oil Prices

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.”