Barron's: Time to Buy the Commodities Bear

By SIMON CONSTABLE

The collapse in commodities prices since summer has some investors wondering whether the complex has any place in their portfolios. The answer depends on the time horizon.

The Thomson Reuters/Jefferies–CRB Index, which tracks a basket of commodities, has fallen about 22% since June 20, according to data from SIX Financial Information. U.S. oil prices are off 46% over the same period, while gold has slid about 7%, on top of a substantial retreat over the prior 18 months. See original story here.

Photo by Pete Nuij on Unsplash

WSJ: What Is Window Dressing?

By SIMON CONSTABLE

To most people the holiday season means decorations at home and at work, but it also
can mean “window dressing” in your mutual fund.

This somewhat disparaging term is used to describe the practice of a mutual fund
making cosmetic changes to its portfolio just before the end of each calendar quarter.
It’s done because funds publish their exact holdings of securities four times a year
based on what they own at the end of each quarter. See original story here.

WSJ: Will the "Presidential Cycle" Boost Stocks in 2015?

By SIMON CONSTABLE

As President Obama gears up for his penultimate year in office, it could be time to cast
a ballot for stocks.

That suggestion has nothing to do with the administration’s policies or whether
investors agree with them. Rather, it’s about history.

Specifically, we’re talking about the so-called presidential stock cycle, which suggests
that stocks do better on average in the president’s third year in office (regardless of
whether it is a first or second term) than in any other year. The pattern has held with
remarkable consistency. See original story here.

Barron's: How USAA Finds Stable Growth

By SIMON CONSTABLE

When you look at the $1.2 billion USAA World Growth fund. you Might think you’re seeing double. First, there are two portfolio managers, David R. Mannheim and Roger Morley. They work for USAA’s subadvisor, MFS Investment Management, which is where the second part of the double vision kicks in. The pair also run the MFS Global Equity fund (ticker: MWEFX), which is “modeled after,” or is substantially the same as, the USAA fund (USAWX). USAA’s World Growth has expenses of 1.19%, versus 1.29% for the MFS version. See original story here. 

Photo by AbsolutVision on Unsplash

WSJ: Five Gifts for the Financially Savvy

By SIMON CONSTABLE

This is the time of year when many of us buy loved ones a special gift. This is the fourth year I’ve compiled a list of suggestions, all with a financial theme. Think of them as reminders that we all need to be savvy about money. As usual, there is something for budgets small or large. Read more here.

Photo by lasse bergqvist on Unsplash

WSJ: How Important is "Active Share" for Fund Managers?

By SIMON CONSTABLE

Just how active is the manager of your actively managed mutual fund? And how much
does it matter?

A debate is on over the concept of “active share”—a measure of how much a portfolio’s
stocks differ from those in its benchmark. The issue is whether it is a valid way to
evaluate managers.

It all started in a 2006 working paper and 2009 article by Martijn Cremers and Antti
Petajisto, then professors at the Yale School of Management. They suggested ranking
funds from zero to 100% based on how much their holdings diverge from a benchmark
index. An active share of 60%, for example, means that 40% of the fund’s stocks merely
match what is in an index—a mix that would make the fund’s manager a “closet indexer,” the professors wrote. Read more here.

WSJ: What Does Confirmation Bias Mean?

By SIMON CONSTABLE

In an effort to understand why investors do what they do, the term “confirmation
bias” is often trotted out. Most basically, it means that people tend to find evidence, in
the form of data or anecdotes, to support their position and ignore evidence to the
contrary.

That might make sense for politicians arguing with each other, but it can be dangerous
for investors.

“From a behavioral-finance perspective, the mind likes to see what it likes to see, and
so it filters information,” says Steve Wood, chief market strategist at Russell
Investments. “You need to expose that bias to the pressure of data.”

In particular, he says, don’t seek out data that supports your position. Instead, look at
all data and try to objectively assess it. In other words, we all want to prove we’re right.
But doing so could lead us to ignore the facts that suggest we’re wrong.

Mr. Wood uses the example of being predisposed to a certain conclusion when discussing inflation. When he talks with some people who were part of the workforce
in the inflation-ridden 1970s, they are often predisposed to seek out inflation
protection in their portfolios.

But right now, according to most government measures of prices, inflation looks tame
and likely to remain so. Still, those who have confirmation bias toward the idea that
there is already or is going to be inflation might conclude they need assets in their
portfolio to protect against it, says Mr. Wood.

The result: Suboptimal investment choices are made.

See original story here.

MarketWatch: This is why people carry credit card balances

By SIMON CONSTABLE

A puzzle that has long vexed personal finance experts may have been solved by an unlikely source: the Federal Reserve.

The problem in question: Why do people so often carry credit-card balances costing 10% to 20% a year, while at the same time keeping money in savings accounts that pay less than half of one percent?

On the face of it, such actions make no sense. And yet two out of three people surveyed by Ohio State University thought it was not a good idea to pay down such debt using savings.

Why is this view so prevalent? People trust that their savings will be there when they need the money more than they trust the banks to lend at such times.

That’s not my view; it’s the Federal Reserve, the banker of last resort to the banking system. It’s an institution that knows only too well how well, or otherwise, banks behave.

The Fed itself sums up the situation facing consumers who might want to borrow.

“There are no guarantees it [credit] will be there when they need it,” states a recent working paper from the Consumer Payments Research Center at the Federal Reserve Bank of Boston. Or put another way, you can’t rely on the bank to lend to you when you need it.

“Savings act as insurance so that even in the worst case when the consumer cannot borrow, she can still consume,” says the report by Scott Fulford, professor of economics at Boston College, and previously a visiting scholar at the Boston Fed. The study analyzed Equifax data from 1999 through 2013, as well as data from the Consumer Finance Monthly survey conducted by Ohio State University.

This lack of trust helps explain why two-thirds (67%) of survey respondents to the Consumer Finance Monthly survey said it was not a good idea to pay off credit card balances with savings.

While this behavior baffled so-called experts, it actually makes sense when you think about it. You have a legal and moral right to access your savings. You can rely on the funds being there. Borrowing, on the other hand, is a privilege that you can’t be sure of especially if you hit a rough patch and become a worse credit risk.

There are other reasons to build up savings even while borrowing.

For people who have racked up substantial debt it can make sense to build savings while they pay down the credit card balances, explains Linda Leitz, a financial planner for Colorado Springs-based financial planning firm, It’s Not Just Money Inc.

The risk of not building savings while paying off a credit card is that once the balance is paid off the same habits that caused the debt will return. “Saving regularly helps them build the emotional muscle,” she says.

See original story here.

MarketWatch: Why China's Money Managers Lag

By SIMON CONSTABLE

Do Chinese money managers have what it takes to do the job?

If you count the ability to pick stocks and generate good returns for clients, then unfortunately most don’t, according to a forthcoming study obtained by MarketWatch.

What’s really needed to outperform for clients is either an MBA degree or a Chartered Financial Analyst (CFA) designation, says the report by Prof. Yi Fang of Jilin University, China and Prof. Haiping Wang of York University, Canada. See original story here.

Photo by Brian Matangelo on Unsplash

MarketWatch: Stock Investors Should Be Cheering a Drop In Oil Prices

By SIMON CONSTABLE

The bear market in crude oil prices should have stock investors elated, not disappointed. What’s more, there’s still time to make money.

Prices for Brent UK:LCOX4 the European benchmark, have tanked more than 20% from $115 a barrel on June 19 to less than $91 today, according to data from FactSet.

Cast off any ideas that the slump in the oil market is a reflection of slowing global growth. Apparently, that doesn’t matter.

How do I know? Last month I met with Professor Ben Jacobsen, head of financial markets at Edinburgh University Business School. He gave me a copy of a paper that he and two other economists wrote on the oil market. They based their research on close to three decades of market data. It was published in the Journal of Financial Economics in 2008 and authored by Gerben Driesprong and Benjamin Maat as well as Jacobsen. Read more here.

WSJ: Why Your Mutual Fund Will Fail, and Index Funds Rule

By SIMON CONSTABLE

The market volatility of recent days illustrates why that old mutual-fund disclaimer—“past performance is not indicative of future returns”—is more promise than warning. It’s also why most people should stick to dollar-cost averaging in index funds.

Dollar-cost averaging is simply the practice of investing a fixed amount on a regular schedule, regardless of where prices go. It’s essentially what you do in a 401(k) plan. Following this method, you tend to buy fewer shares when prices are high and more when prices are low, and are less prone to panic selling when prices dip. See original story here.

Photo by Mahdi Bafande on Unsplash

WSJ: What Is Momentum Investing

By SIMON CONSTABLE 

You may hear money managers talk about momentum investing. But what exactly does it mean?

In strictest terms, a momentum investor buys stocks that have been going up in value and sells those that have been falling, says Vineer Bhansali, manager of Pimco Trends Managed Futures Strategy fund. He makes investment decisions based at least partly on momentum across asset classes, not just stocks. See original story here.

Photo by No-w-ay in collaboration with H. Caps, 

CC BY-SA 4.0, via Wikimedia Commons

WSJ: What is Sentiment and Why Does it Matter?

By SIMON CONSTABLE

This summer you've likely heard people talk about market sentiment, but what does it actually mean and why is it considered important?

Sentiment tells you how bullish or bearish investors are on the market. Most often people mean the stock market, although sentiment can be looked at for any asset class. See original story here.

Photo by Zhuo Cheng you on Unsplash

Barron's: How to Simplify Your Commodities Exposure

By SIMON CONSTABLE

Investors have long known that adding a dash of commodities to their portfolios can be beneficial to their wealth. The only problem has been implementing this strategy.

It's difficult to know which commodities are a good bet, and broad commodities-focused indexes are inadequate. Investors also worry that futures prices don't always track the spot market. But veteran economist David Ranson, at Cambria, Calif.-based HC Wainwright & Co. Economics, might have a solution to all these potential problems: investing in just four commodities. See original story here.

Photo by Markus Winkler on Unsplash

MarketWatch: CEOs Play the Fool with Stock Option Pay

By SIMON CONSTABLE

Just because you run a large and sophisticated public corporation doesn’t mean you can’t be played for a fool when it comes to executive pay.

It’s hard not to draw such a conclusion after reading a recently published study of CEO pay which cited extreme naiveté, confusion and knee-jerk decision-making.

Academics Kelly Shue and Richard Townsend of the University of Chicago and Dartmouth College, respectively, studied executive pay at corporations in the S&P 500 between 1992 and 2010. What they found is somewhere between jaw-dropping and staggering. Read more here.

Xcore082, CC BY-SA 3.0, 

via Wikimedia Commons

WSJ: Why the Time Horizon Matters in Investing

By SIMON CONSTABLE

When it comes to investing, we sometimes forget about the clock. Or as the pros call it, the investment time horizon.

That's unfortunate, because "it's incredibly important," says Cody Willard, an investor in Alto, N.M.

The time horizon is a guide investors use to decide how long to hold an investment. You should make the decision "before you move any money around," says Mr. Willard.

For traders, time horizons can be short—sometimes a matter of hours or days. But for most investors, they are much longer.

A trader may make a bet based on economic data due out a week from now. When the news breaks, the trade is either successful or it isn't. Either way, the position should be closed out.

Failure to close a position within a predetermined time is one of the biggest mistakes a trader can make, says Mr. Willard. That's when a losing trade gets turned into an "investment," he says.

For retirement planning, time frames are necessarily longer. A 30-year-old man should have a time horizon of at least 50 years. Even if you retire at 65, you need to consider that you'll likely be living into your 80s, so your assets will need to be invested for a long time.

Over such a long period, the relative volatility of stocks versus bonds or cash doesn't matter since there is plenty of time for the price to recover.

See original story here.

Barron's: How Fidelity Looks at Tech Stocks

By SIMON CONSTABLE

Some people grow up wanting to be stockpickers. Not so Gavin Baker, manager of the $11 billion Fidelity OTC Portfolio fund.

His work at Fidelity, his home since 1999, is a far cry from Baker's original aspirations. He'd envisioned working the winter ski business and spending the off-season rock-climbing and selling photographs. But then dad intervened. According to Baker, his father said, "Since we've paid your way through college, please take one professional internship of any kind." See original post here.

WSJ: Why Tighter Credit Spreads Matter

By SIMON CONSTABLE

Lately we've been hearing that credit spreads are tightening. What are they, and why do they matter?

A spread measures how much more a business pays to borrow money than the government does.

At any given time, different companies pay different spreads for their debt, depending on factors including the maturity of the debt and the health of the company. But overall, spreads have shrunk in recent years.

It was 1.4 percentage points at the end of June, a fraction of its peak of eight percentage points in December 2008.Consider a BofA Merrill Lynch index that measures the interest rates paid by companies whose debt is rated BBB—neither the highest nor lowest quality. The weighted average spread for all the debt in the index is around its lowest level since the financial crisis, notes Jeremy Hill, managing partner at New York-based research firm Old Blackheath Cos.

Mr. Hill says tighter spreads are a result of the extraordinary efforts by central banks around the world to encourage economic growth by keeping borrowing costs low for companies and individuals. "Monetary policy is vastly different than it was 10 years ago," he says.

For investors, the lower spreads mean less of a reward for venturing into corporate debt rather than buying safer Treasurys. But, Mr. Hill notes, that hasn't stemmed demand for corporate bonds, because "investors are yield-hungry."

He adds that the credit risk of buying corporate debt has declined, in part because the lower cost of borrowing means there is less risk of companies failing to pay the interest owed.

See original story here.

MarketWatch: Why it’s time to invest in transportation stocks

By SIMON CONSTABLE

Has the lackluster U.S. economy finally become the little engine that could?

A quick look at the rail freight business suggests something good is happening. The only question is how long it lasts.

Movement of rail cars around the U.S. has surged so far in 2014 in a way not seen for years, as you can see from the chart.

Rail shipments — which include everything from coal, petroleum products, grains and auto parts — jumped 5.8% in May versus a year earlier, to a weekly average of 296,579, according to D.C.-based industry group American Association of Railroads. In April, they rose 6.9%.

Why should we care?

“It suggests the economy is expanding,” says John Osterweis, chairman and chief investment officer of San Francisco-based Osterweis Capital Management.

Based on past experience he’s likely not wrong. A MarketWatch analysis of industrial production and rail car shipments from January 2001 through April this year shows that 63% of the variation in the growth of shipments is explained by changes in growth of industrial production. (The analysis is known as regression analysis, if you are interested.) The relationship makes intuitive sense also because much, but not all, of the things shipped are used in industrial processes.

It isn’t 100% because some of the items shipped aren’t used in industry, such as grains or road aggregates. In addition, there are timing differences — some things go into inventory and take a while to work their way into finished products.

The takeaway is that as rail shipments go, so goes manufacturing. But for investors, watching the rail data is just better. Why? For starters, the rail data comes out weekly, while the industrial data for the U.S. comes out half way through the following month. Even better, outside of rail stock analysts, the shipments data hardly get any attention.

To profit from the trend, if it continues, go for stocks in the transport sector such as “rails, transports, airplanes and industrials,” says Steven Pytlar, chief equity strategist at New York-based brokerage firm Prime Executions.

He doesn’t mention specific names, but likely beneficiaries would include FedEx, CSX, Norfolk Southern and Alcoa.

Then later in the economic cycle he says go for sensitive areas of the economy like energy and materials such as Exxon Mobil and BHP Billiton. He reasons that late in the economic expansion, cost pressures start to rise and such companies tend to be good inflation hedges.

See original story here.

WSJ: Try Stop Orders, For Peace of Mind

By SIMON CONSTABLE

Sometimes when you've made substantial gains on a stock or exchange-traded fund, you face a tough choice: Do you sell to lock in the profit? Or hold on for more gains but risk losing what's been made?

Mr. Elfenbein notes that once you have a gain on paper, it's psychologically very hard to watch it disappear. The ability to protect those gains makes the trailing stop order very appealing.One way to have your cake and eat it too is to use a trailing stop order: an order to sell your position if the price falls by a predetermined percentage or dollar amount. Most orders are set 20% below the current price, says Eddy Elfenbein, editor of the Crossing Wall Street newsletter. Some people also periodically cancel the orders and reset them at higher prices if there is a rally. Stop orders cost a little more than simple market orders.

But these orders aren't without peril. "There is a risk you get 'stopped out' of a good position," Mr. Elfenbein says. How so? Flash crashes—or temporary drops caused by electronic trading glitches or errors—may cause a position to be sold when it would have been better to hold on.

Another risk: When the stop price is reached, the order is filled at the market price. During periods of market disruption, that can mean you get a price much lower than where the "stop" was placed.

Trailing stops also are available for short sellers, who sell borrowed stock hoping to buy it back later at a lower price. Their stops take the form of buy orders set above the current market price.

See original story here.

Barron's: Why Aluminum Price Will Bounce

By SIMON CONSTABLE

The cure for aluminum's low prices seems to be those low prices themselves. That's standard free-market economic theory, and it appears to be playing out in the real world. After years of overproduction of aluminum and steady price declines, producers are starting to manufacture less of the metal, which is used in everything from packaging to auto parts to airplanes. That could bring prices back above $2,000 a metric ton.

Benchmark futures, traded on the London Metal Exchange, are down about 34% from their May 2011 peak of $2,774 a metric ton, and recently traded around $1,820. See original story here.

Aluminum extrusion

Photo by Mastars on Unsplash

MarketWatch: How Treasury's Jack Lew Could Kill Stocks

By SIMON CONSTABLE

Who’s going to sink the stock rally?

A lot of people assume it will be Federal Reserve Chairwoman Janet Yellen who sooner or later will start to raise the cost of borrowing. But equally important could be Treasury Secretary Jack Lew.

Why? These two people hold wrenches that could potentially monkey with mergers and acquisitions activity. Frenetic deal making on Wall Street tends to go hand-in-hand with a firm stock market.

Doubt me? Just look at the chart below plotting the dollar volume of U.S. deal activity (as tracked by Dealogic) and the S&P 500. Deal flow goes up, so does the market. Deal flow drops, so do stocks. There’s certainly a correlation.

Deals are affected by many things including management optimism. But a couple of things stand out. One is the cost of borrowing money.

Low interest rates are certainly favorable for M&A, explains Bob Bruner, dean of the Darden Graduate School of Business Administration and co-author of the book, “Deals from Hell.” Or put another way, when the cost of borrowing money is cheap then it can make sense to buy other businesses.

As rates rise the favorability of borrowing to do such things will be lessened. But as we have heard, Yellen’s Fed will likely raise rates starting next year.

The other thing is tax rates. Even the casual observer knows that tax rates drive deal activity. U.S.-based Pfizer’s thwarted desire to buy UK-based AstraZeneca  for $120 billion was no doubt driven by the desire to avoid 35% U.S. corporate tax rates and switch to much lower British taxes. It’s known as tax inversion. Although, the Pfizer-AstraZeneca deal is off for the time being, other companies such as Eaton, Chiquita Brands and Applied Materials have all successfully retreated to lower tax countries, or are well on the way. Others are considering the move.

Although tax inversions are eminently possible now, politicians are increasingly banging the drum to stamp them out. That job will fall on the Internal Revenue Service, part of Lew’s Treasury. It could be that tax inversions get legislated away by Congress. Or alternatively the folks at the IRS could simply eliminate them using new interpretations of existing laws.

So there you have it. A potential nightmare scenario: higher interest rates and a clamp down on tax-led deals could dry up the deal flow.

When it does, expect stocks to languish.                    

See original story here.

Barrons: The Three Big Trends to Watch Internationally

By SIMON CONSTABLE

When George Evans, portfolio manager of Oppenheimer International Growth (ticker: OIGAX), isn't worrying about what the future will look like for his investments, it's likely that he'll be reading for pleasure.

The native of the U.K., who graduated from Oxford with a joint bachelor's and master's in geography, and then earned an M.B.A. from Wharton, says he reads an "enormous amount," including history, armchair science, and novels. Though this reading is not directly tied to his day job, "You never know where ideas come from," he says. "It's tremendously important to read extensively." See original story here.

Photo by Greg Rosenke on Unsplash

Barrons.com: Who You Gonna Believe, Janet Yellen or Your Lying Eyes?

By SIMON CONSTABLE

When it comes to inflation, who are you going to believe, Janet Yellen or your lying eyes? If you see rising prices you should tweak your portfolio with some inflation-loving stocks.

Yellen, who heads the Federal Reserve, says inflation is subdued. The latest government data could delude you into thinking that's true, with the consumer price index up less than 2% on the year.

But here's the rub, because like politics, all inflation is local. If rising prices empty my wallet then we have inflation, regardless of what the government says. See original story here.

United States Federal Reserve, 

Public domain, via Wikimedia Commons

WSJ: A Fund-Company Chief Embraces Technical Analysis

By SIMON CONSTABLE

If it wasn't for the global financial crisis that began in 2007, Sam Stewart, president of the Wasatch Funds, might never have considered using so-called technical analysis to help pick stocks.

But these days he wouldn't consider doing otherwise.

Technical analysis, also known as chartism, is the art of using patterns in stock-price charts to help make investment decisions. It differs from "fundamental" analysis, which looks at the economics and finances of industries and companies.

It's unusual for investment managers who rely on fundamental analysis to give much weight, if any, to stock charts, says Vinny Catalano, chief investment strategist at New York-based Blue Marble Research, a market-research and asset-management firm. Fundamental analysts, he says, often dismiss technical analysis as fluff that lacks any theoretical underpinning for its conclusions. But not Mr. Stewart.

In the fall of 2007, he saw value in stocks. The major indexes were starting to drift lower then, and some sectors, including financials, were already tanking. Some stocks looked cheap to him, based on fundamental analysis, so he bought them—and lost money as markets plunged in 2008 and into 2009.Wasatch Advisors, the fund-management firm Mr. Stewart founded in 1975 and still runs, is well known for doing solid fundamental research and generating competitive returns. "We used to be 100% fundamental analysis," Mr. Stewart says.

In retrospect, Mr. Stewart says, "I lost sight of the forest for the trees." If he had looked at the charts at the time, he'd have said to himself, "You are crazy" to consider buying, he now says.

So, while Wasatch still conducts intense fundamental analysis, Mr. Stewart now monitors "several technical indicators that were flashing warning signs prior to the global financial crisis," as he explained in an April 4 letter to Wasatch shareholders.

He focuses on two technical indicators to supplement his analysis. One is point-and-figure charts, designed to display patterns in share-price movements in a way that makes it clear when a new upward or downward trend has emerged. The other is moving averages of share prices. For instance, if the current price of a stock is above both its average over the past seven weeks and its average over the past 21 weeks, and both moving averages have an upward slope, then the stock is in both a short-term and long-term upward trend. Many chartists see that as a buy signal.

For those who are bullish on stocks, Mr. Stewart has some good news. The same indicators he ignored at his peril back in 2007 "are giving me reasons for optimism today," he wrote to shareholders.

See original story here.

WSJ: Stock-Market Capitulation, Defined

By SIMON CONSTABLE

Sometimes there comes a point in battle where one army just gives up. It's called a capitulation.

The same thing occasionally happens in investing, and it can arrive in the form of panic selling.

"It's when the towel gets thrown in," says Vinny Catalano, chief investment strategist of New York-based Blue Marble Research. There are a lot of times when selling by investment professionals is rooted in pressure from clients wondering why you're losing money or not beating the market, he says.

If the pressure is great, then you'll get a lot of stocks being dumped all at once.

A great example of a capitulation came in 2008. Over the first eight months of the year the major indexes lost about 11% as problems in the banking system became apparent. By September investors were clearly agitated, and the S&P 500 index plunged from 1,255 on Sept. 19 to under 900 by Oct. 10.

That also coincided with historically high trading volume, but elevated volume isn't a necessary aspect, Mr. Catalano says. He points out that a temporary rally in stocks often comes within a few months before the real "bottom" is set. After that plays out, a rally can really get going again, as was the case in 2008-09.

The great thing about capitulations is that there is an opportunity to find bargains. "I live for those days," Mr. Catalano says, but "they don't happen often."

The recent selloff in biotechnology stocks likely isn't a capitulation, but rather just profit-taking within a bull market, he says. One clue is that people haven't given up on the biotech sector.

See original story here.

Barron's: Why Oil is Cruising for a Bruising

By SIMON CONSTABLE

Here's a puzzle: The U.S. is producing the most crude oil in decades, domestic stockpiles are at record highs, yet oil prices are near $100 barrel. What's keeping prices aloft?

The first piece of the puzzle is the way the U.S. prices its oil. The U.S. benchmark, known as West Texas Intermediate, or WTI, is based on delivery at a storage hub in Cushing, Okla. How much oil is stored in Cushing affects the price. At the moment, inventories of oil across the U.S. are at their highest going back to 1982, but Cushing has seen a steady drop since a new pipeline linking the hub to refineries along the Gulf Coast opened earlier this year.

The Cushing hub is "running on fumes," according to Société Générale, giving the appearance of tight supplies, and leading prices higher.

Another boost is from money managers, including hedge funds diving into the futures market. Financial firms betting on higher prices outnumbered those betting on a slide by 322,788 futures contracts as of April 22, almost double the number a year ago, according to the U.S. Commodity Futures Trading Commission.

There's more. The U.S. oil benchmark is also tracking global crude prices, which have been elevated by tensions between Russia and Ukraine. The threat of more-intense hostilities and the possibility of a supply outage will likely keep Brent crude, the global benchmark, higher until the situation is resolved, wrote Commerzbank in a recent report. Russia is the second-largest oil exporter after Saudi Arabia, and investors are concerned that Western sanctions in response to Moscow's encroachment on Ukraine could hinder the flow of crude.

Currently, WTI trades about $9 below Brent. U.S. oil prices settled Friday at $99.76 a barrel, up 1.4% for the year.

BUT THAT'S ONLY THE story so far. Analysts see plenty of reasons for oil prices to slide in the weeks ahead. Oil inventories are piling up in the South as several Gulf Coast refineries have temporarily shut down for maintenance, writes Michael Cohen, an analyst at Barclays in New York. Oil continues to flow to the Gulf Coast because it fetches a higher price there—that's the so-called Light Louisiana Sweet, or LLS—than it does in Cushing. But Cohen says transportation costs from Cushing to the Gulf Coast also add $3 to $4 a barrel.

However, the buildup of supplies on the Gulf Coast has started to weigh on the LLS price, and that will bring it closer to the U.S. benchmark price, Cohen says. As prices near parity, it makes less economic sense to send crude from Cushing to the Gulf Coast, which will help supplies at Cushing rebuild. When Cushing's stockpiles grow, WTI prices are likely to soften.

A threat to prices is also "posed by a potential wave of hedge-fund liquidation of existing long positions," Cohen wrote in March, referring to bets on higher prices. If hedge funds do dump a substantial part of those bets, $10 to $15 would be wiped off the price of a barrel, he wrote.

Finally, when the Ukraine crisis abates, Brent prices are likely to retreat, and with that, WTI prices may fall as well.

"It could be a while," but eventually prices should capitulate, says Michael Wittner, a global head of oil research at Société Générale in a recent research report. 

See original story here.