'Relentlessly Bearish' Dennis Gartman Turns Bullish On Oil

At the end of a week in which there seems to be very little cause for optimism among crude oil bulls, Dennis Gartman decided it’s finally time to go long oil. WTI crude oil prices hit 6.5-year lows and shares of the United States Oil Fund ETF USO hit all-time lows this week following news of a surprise build-up in U.S. inventory levels and weak Chinese manufacturing numbers. However, Gartman explains why he now believes that there are good things on the way in the oil market.

Watching the front month spread
In his Friday letter, Gartman was very clear about his shifting mindset. “Crude oil prices are lower but we are changing our view on prices for having been overtly and rather relentlessly… and very publicly… bearish, we are this morning turning bullish of crude oil and we are turning so because the term structure shifts mandate that we do so,” he declared.

Gartman is basing his shift in outlook on the narrowing front month contangos of both Brent and WTI as prices have fallen, which he interprets as a sign of coming strength in oil prices. “We do not make this statement lightly for this is a material shift in our view of the energy market… a very material shift,” he adds.

Following “informed” money
While crude oil prices during the past week have fallen by $2.70/bbl, Gartman was watching for a widening forward month contango and instead it has tightened. This observation left Gartman with only one conclusion.
“’Informed’ money, as we like to refer to it, is leaving the bearish case behind and so too should we.”

What to watch
Moving forward, Gartman will be watching U.S. rig counts for signs that production may be finally scaling back by a meaningful level. He also mentions that any strength in natural gas prices as cooler temperatures arrive could provide a psychological boost to oil prices as well.