Oil Stocks

[Alberto Torri 0]

I am an Italian investor and I am worried about the performance of oil stocks. Do you think the current situation for oil companies could be worse than 2016?

Thank you in advance

 

[Chris Kanaan + 22]

It really depends on which energy companies you invest in, or "oil" as you say.

You have to be very careful if you're going to invest right now.

I think 2020 will be worse for shale;  it will be better for Canadian and some international co's.  

 

[0R0 + 6,251]

You will have a large bounce after the Chinese demonstrate that they can function with 1/3 of the population in quarantine and the rest being extremely careful and both employers and workers reluctant to reopen operations. 

There are millions of barrels of oil piling up as many Chinese facilities are still closed.

Lookup the coronavirus effect on oil prices page, there are a number of estimates from different people. I would approach it as a trend reversal trade - looking at it from the perspective of  a break of the downtrend as trigger to buy.. Look at oil companies with solid balance sheets that had good cash flows last year if you are an investor. Alternately, look to buy in small increments below the market with limit orders, You can use technical analysis tools to produce likely target prices where your orders might be filled. 

If you are just looking for a trade, then look for the more volatile marginal producers in the exploration and production space (or the XOP ETF) and buy them on the break of the downtrend with stop limit order trailing behind in case things reverse again.

[Alberto Torri 0]

Can anyone explain to me why with an oil at 53 dollars the energy sector is at 405 points https: //www.cnbc.com/sectors/
below 2016 levels when oil went below $ 30?
It is absurd as unfair

Edited February 21, 2020 by Alberto Torri

[0R0 + 6,251]

2 hours ago, Alberto Torri said:

Can anyone explain to me why with an oil at 53 dollars the energy sector is at 405 points https: //www.cnbc.com/sectors/
below 2016 levels when oil went below $ 30?
It is absurd as unfair

There is a perception that the current blip up in oil is temporary and the sector will suffer suppressed oil demand for months rather than 3 weeks. It is justified even though production is below normal demand levels. Markets restored backwardation this week, indicating a scarcity. I believe it is due to the expectation of an inflationary impulse due to a shortage of Chinese made products, thus traders will accumulate oil and gold as a hedge. Thus oil stocks will look better as Oil prices rise on a background of extreme pessimism. Look for COT reports indicating less commercial hedging (less shorts) and more speculative  trader shorts (fewer net spec longs) getting extreme and reversing. We are nearing extreme COT positioning such as we had in Dec 2018 when oil bottomed and rebounded strongly.

In the meantime, it is time for long term investors to slowly increase positions with incremental buys below market with limit orders as the energy stocks trend down. The XOP chart shows a potential probable bottom range in the 16 point level vs recent low at 18.37. So having open orders with limits in that range is a good idea if you are long term bullish. Weigh your risks. The closer your limit orders are to the bottom of the range, so the probability of being filled is reduced. Of course, there is no guarantee that that bottom will hold. 

For faster investors or a trade, wait for the trend to break upwards on the stocks. XOP would be a good proxy to follow as it is very leveraged to the price of oil. The momentum indicator MACD has turned positive on the histogram earlier this week. Which was followed by rallies of 15-20% the last 3 times it has happened in the last 6 months.

https://stockcharts.com/freecharts/gallery.html?xop

 

Edited February 21, 2020 by 0R0
clarification

[George8944 + 128]

8 hours ago, Alberto Torri said:

Can anyone explain to me why with an oil at 53 dollars the energy sector is at 405 points https: //www.cnbc.com/sectors/
below 2016 levels when oil went below $ 30?
It is absurd as unfair

Alberto - the S&P Energy Sector is a very broad representation of the Energy Market.  It includes companies that drill, refine, transport, etc.  It also includes companies companies involved with non-oil energy.   Don't forget refining companies like Marathon Oil or Valio make money on the spread between the cost of oil and refined product.  Their profits are based more on demand and the rate of change in oil prices.   Exxon/Moblile on the other hand is mostly a drilling/exploration company.   These people have lots of fixed costs and are impacted by price of oil.   A deep well rig many not be profitable at $30.

[George8944 + 128]

On 2/1/2020 at 11:05 AM, Alberto Torri said:

I am an Italian investor and I am worried about the performance of oil stocks. Do you think the current situation for oil companies could be worse than 2016?

I know many will disagree with me, but I think the Oil part of the Energy market may have it's upswings, but I think the general trend will be down over the long run ( next decade ).    Instead of betting on one of two companies, I would buy an EFT.   The big oil companies like Exxon and Chevron are very over extended.   Both borrowed money to pay their lofty dividends.   One can't do that forever.  Eventually debt needs to be paid. 

I'm too am looking for a gem, but I'm not finding it.  

[Alberto Torri 0]

4 hours ago, George8944 said:

Alberto - the S&P Energy Sector is a very broad representation of the Energy Market.  It includes companies that drill, refine, transport, etc.  It also includes companies companies involved with non-oil energy.   Don't forget refining companies like Marathon Oil or Valio make money on the spread between the cost of oil and refined product.  Their profits are based more on demand and the rate of change in oil prices.   Exxon/Moblile on the other hand is mostly a drilling/exploration company.   These people have lots of fixed costs and are impacted by price of oil.   A deep well rig many not be profitable at $30.

 

Edited February 22, 2020 by Alberto Torri

[Alberto Torri 0]

4 hours ago, George8944 said:

Alberto - the S&P Energy Sector is a very broad representation of the Energy Market.  It includes companies that drill, refine, transport, etc.  It also includes companies companies involved with non-oil energy.   Don't forget refining companies like Marathon Oil or Valio make money on the spread between the cost of oil and refined product.  Their profits are based more on demand and the rate of change in oil prices.   Exxon/Moblile on the other hand is mostly a drilling/exploration company.   These people have lots of fixed costs and are impacted by price of oil.   A deep well rig many not be profitable at $30.

yes but now the oil is at 53 dollars and not 30 and this game of massacre on the oil giants does not make any sense

 

[Alberto Torri 0]

4 hours ago, George8944 said:

I know many will disagree with me, but I think the Oil part of the Energy market may have it's upswings, but I think the general trend will be down over the long run ( next decade ).    Instead of betting on one of two companies, I would buy an EFT.   The big oil companies like Exxon and Chevron are very over extended.   Both borrowed money to pay their lofty dividends.   One can't do that forever.  Eventually debt needs to be paid. 

I'm too am looking for a gem, but I'm not finding it.  

Sorry and in your opinion the oil shares will always drop from here to the next 10 years!?

 

[Alberto Torri 0]

10 hours ago, 0R0 said:

There is a perception that the current blip up in oil is temporary and the sector will suffer suppressed oil demand for months rather than 3 weeks. It is justified even though production is below normal demand levels. Markets restored backwardation this week, indicating a scarcity. I believe it is due to the expectation of an inflationary impulse due to a shortage of Chinese made products, thus traders will accumulate oil and gold as a hedge. Thus oil stocks will look better as Oil prices rise on a background of extreme pessimism. Look for COT reports indicating less commercial hedging (less shorts) and more speculative  trader shorts (fewer net spec longs) getting extreme and reversing. We are nearing extreme COT positioning such as we had in Dec 2018 when oil bottomed and rebounded strongly.

In the meantime, it is time for long term investors to slowly increase positions with incremental buys below market with limit orders as the energy stocks trend down. The XOP chart shows a potential probable bottom range in the 16 point level vs recent low at 18.37. So having open orders with limits in that range is a good idea if you are long term bullish. Weigh your risks. The closer your limit orders are to the bottom of the range, so the probability of being filled is reduced. Of course, there is no guarantee that that bottom will hold. 

For faster investors or a trade, wait for the trend to break upwards on the stocks. XOP would be a good proxy to follow as it is very leveraged to the price of oil. The momentum indicator MACD has turned positive on the histogram earlier this week. Which was followed by rallies of 15-20% the last 3 times it has happened in the last 6 months.

https://stockcharts.com/freecharts/gallery.html?xop

Sorry and when do you think there could be a turnaround in the energy sector since it now stands at 406 well below the 2016 lows? Do you think we're going to review the prices of 2008 2009? Or is it appropriate to sell everything at a loss before the situation worsens further?

 

[0R0 + 6,251]

11 minutes ago, Alberto Torri said:

10 hours ago, 0R0 said:

Sorry and when do you think there could be a turnaround in the energy sector since it now stands at 406 well below the 2016 lows? Do you think we're going to review the prices of 2008 2009? Or is it appropriate to sell everything at a loss before the situation worsens further?

 

You will see prices rebound as soon as the inventory accumulated during the quarantine starts being worked down. It may not take that long since China is doing its best to add to its strategic oil reserves at these prices. But it won't happen till the Quarantine is mostly over. Which is still at least some weeks ahead. 

The downside potential for oil stocks for the next few weeks may be ~10% for major integrated companies ~20% for exploration and production independents. It might not last long enough to provide you with a buying opportunity. So since the downside momentum is diminishing, and a bottom is near, I would ride it out. Perhaps buy out of the money ETF or Index puts to protect the position.  

These are details to talk over with your broker or adviser to tailor them to you and your portfolio. 

[Alberto Torri 0]

32 minutes ago, 0R0 said:

You will see prices rebound as soon as the inventory accumulated during the quarantine starts being worked down. It may not take that long since China is doing its best to add to its strategic oil reserves at these prices. But it won't happen till the Quarantine is mostly over. Which is still at least some weeks ahead. 

The downside potential for oil stocks for the next few weeks may be ~10% for major integrated companies ~20% for exploration and production independents. It might not last long enough to provide you with a buying opportunity. So since the downside momentum is diminishing, and a bottom is near, I would ride it out. Perhaps buy out of the money ETF or Index puts to protect the position.  

These are details to talk over with your broker or adviser to tailor them to you and your portfolio. 

Thank you very much for the advice, it was very useful. I wish you a good weekend