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It's been several days of declines now in XEG.

Maybe the rally in Canadian energy is over?
The current sentiment is dragging everything down. Oil companies are making Hugh profits at the current prices. Once we get past this current turmoil they will get a real good bounce. The NG companies might have some difficulties because of the closure of the giant Freeport LNG facility.
 

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Natural gas just got decimated yesterday! Dropped 15% in one day (using HUN.TO as proxy) and is now below the 50 day MA. This was because an LNG plant in Louisiana had an issue and announced they won't be able to process natural gas for export until the end of the year. I guess this means there will be excess supply domestically now, since some of that gas would have gone to this plant for export, but now it can't.

Oil still doing OK in my view. It's coming down slightly but still above the 50 day MA and there are several other similar-looking declines in the general upward trending chart.
 

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Discussion Starter · #45 ·
Natural gas just got decimated yesterday!
Do you think the energy bull market could be fizzling out? Oil & gas has been falling hard in the last few days.

Central bank tightening is also likely killing demand. And all the speculators who went long in commodities/energy, expecting high inflation, could now get caught off-side. Maybe they will want to unwind their positions due to Fed hawkishness, driving energy down.

Remember how energy shot up really high on the inflation scare that came right before the 2008 slowdown?
 

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Do you think the energy bull market could be fizzling out? Oil & gas has been falling hard in the last few days.

Central bank tightening is also likely killing demand. And all the speculators who went long in commodities/energy, expecting high inflation, could now get caught off-side. Maybe they will want to unwind their positions due to Fed hawkishness, driving energy down.

Remember how energy shot up really high on the inflation scare that came right before the 2008 slowdown?
My speculative portfolio is heavily in oil/gas so I hope not. As of yet I have no plans to rotate out. I'm using a momentum strategy in that portfolio, where I take the top two ETFs by performance over the past year. Once a month I evaluate if they need to change. At the moment they are still HUN (natural gas) and NNRG (energy). I don't actually hold NNRG because it's so new it just leaped into the chart last month or something, instead I hold HUN and the #3 which is HXE (also energy). I figured it's not worth changing horses from HXE to NNRG as they are basically the same thing.

Anyway, as per my strategy, since they are still the top 2 ETFs, I will continue to hold them. Yesterday was painful though. But luckily my speculative portfolio is just a small portion, which I use for travel. My strategy doesn't require me to speculate on the future, though it's fun to do.

My speculation is that it's not going to fizzle out just yet. Natural gas is an edge case that was impacted by this plant explosion, but I think the general oil/gas sector has farther to run. However, I'm FAR from an expert, so don't listen to me!
 

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Do you think the energy bull market could be fizzling out? Oil & gas has been falling hard in the last few days.

Central bank tightening is also likely killing demand. And all the speculators who went long in commodities/energy, expecting high inflation, could now get caught off-side. Maybe they will want to unwind their positions due to Fed hawkishness, driving energy down.

Remember how energy shot up really high on the inflation scare that came right before the 2008 slowdown?
Oil and gas hasn't even corrected yet and we're calling the end of the bull market? Oil is selling at $135-155 Canadian a barrel today - record prices.

Central banks are rapidly tightening in an attempt to suppress demand. If they succeed then what? Are the central banks going to sustain pressure until tens of millions of people lose their jobs, or worse? 2008 wasn't caused by oil prices, it was caused by finance, and as soon as demand came back, the oil bull market ran for another 5 years until one trillion dollars of shale equity was finally destroyed. Do you see anyone ponying up another $1 trillion for another go at shale oil?

There is no supply solution, only solutions that make the problem worse, like threatening oil companies with new taxes or investigations and bad press while we shut down nuclear plants. Worldwide insanity on energy policy.

WTI is $115 and China has been shut down for almost 3 months now and jet fuel demand is 20% below 2019 but roaring back. Think about what is happening.
 

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I haven't had a chance to look into the Louisiana closure but if it means LNG is stranded domestically will that equate to higher prices for LNG outside NA and lower prices here at home? If that is the case it may do more to curb inflation than the hikes from central bankers. :p Demand destruction is a dangerous pursuit which will result in more inflation in the near term and a surprise halt to the overall economy once it arrives. I would prefer to see an increase in supply but that will take a lot of time as well. In the meantime I am holding onto energy. I'd like to add but I expect the drop to be sudden when it does come and the lower my ACB the better as I hold in registered accounts. For now I will take it week by week and quarter by quarter. Once people realize ESG is a marketing hoax (I am all for ESG but not many of the funds practice what they preach) perhaps the big funds will start flogging oil again. BTW Canadian oil is in a much better situation from an ESG perspective than most believe.
 

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Degraded LNG export capacity simply means potentially higher LNG prices in Europe and lower natural gas prices in North America. It probably will not result in demand destruction since Europe in particular is going to be desperate to replace Russian gas for some time. Even if/when sanctions are lifted, I suspect Europe will not hostage itself nearly as much to Russia again.
 

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I reread my post and can see that I was not very clear in my statement regarding demand destruction. I agree that it is unlikely the export disruption will not lead to demand destruction. Oil and NG are not one in the same. For additional clarity missing in my previous post: There are a number of those that believe escalating fuel prices will result in people being more selective on travel frequency and options. Or just not buy fuel at all and opt for other modes of transportation. This would hypothetically kill demand. I am not in that camp. As mentioned by doctrine and others China hasn't lifted lockdowns and a lot of workplaces have yet to fully return to work. Apparently, a lot of work spaces were given up and now the game of musical chairs has begun. As far as personal discretionary travel is concerned, I believe at least over the summer and perhaps this winter people will forego other discretionary spending in order to travel. Of course this does not apply to those that are already stretched thin due to low income. They may be forced to cut spending in all areas as a result of high inflation. Energy supply (all sources) in Europe will be a mess for years to come but in particular Nat gas. In hindsight it is easy to see how we got into this mess but solutions don't seem to be immediate. As a result I feel this bull has more room.
 

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Discussion Starter · #51 ·
Oil and gas hasn't even corrected yet and we're calling the end of the bull market?
I'm just trying to stimulate debate and help us consider the other side of the trade. Let's remember that central banks are tightening, and that could take some steam out of commodity prices.

In a place like CMF, there's a danger of "groupthink" since this is a very energy-friendly crowd. Many people here probably want to believe that commodities & energy will remain strong. That kind of bias can cloud trading judgement.

So I think it's healthy to always ask: what's the other way this trade can go?
 

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I'm just trying to stimulate debate and help us consider the other side of the trade. Let's remember that central banks are tightening, and that could take some steam out of commodity prices.

In a place like CMF, there's a danger of "groupthink" since this is a very energy-friendly crowd. Many people here probably want to believe that commodities & energy will remain strong. That kind of bias can cloud trading judgement.

So I think it's healthy to always ask: what's the other way this trade can go?
Of course it's useful to look at the other side. A serious recession will dampen demand and delay the inevitable crunch. It also allows the rapid dumping of strategic reserves to be more effective. And so down it goes, but all of the same fundamentals are still in place. The market is adjusting to the new reality of slower growth and in a market sell-off, everything goes down. As well this is seasonally the end of the strong demand period and market leaders like energy are easy targets for profit taking and for covering margin-calls. Market selling knows no rationality - sell first, ask questions later.

Once this sell-off and unwinding slows down, I would not be surprised to see energy surging back to new highs as news continues to develop that there is no magic solution to replacing energy and there is not enough of it, and we are years and years away from even changing our thinking, let alone breaking out the drill bits.
 

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I mean look at this. Energy Secretary for the largest economy and producer of oil and leader of the free world making the rounds with a plan that involves the president writing letters to oil and gas companies demanding that they should "increase supply". Then we have an interlude around big oil making too much money and the denouement is we want to put you all out of business as soon as we can anyway. Oil is going to 200 and Putin must be laughing.

 

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The current WH administration sure does have this one mucked up. It's unbelievable how incredibly stupid this current behaviour currently is but it really just shows how desperate the political situation actually is at this point. Imagine a windfall profit tax while at the same time admonishing the industry for not spending more capital. Never mind that spending more capital will have no near term effect and that no prudent company will spend money on anything requiring more than a 3-5 year payout, never mind a return on investment.
 

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This is insane. Biden telling companies to increase production while indicating he is going to tax them further. Barriers to production need to be removed not increased. Some of these companies did a great job while maintaining investment in production when oil was essentially worthless. Crazy days indeed. Recent events show how easily our economic systems can be disrupted. Everyone is talking about increasing supply but if the oil price drops too quickly it is possible that OPEC will cut supply. We often forget that OPEC has political and economic levers they can pull to move the price of oil up or down.
 

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The current WH administration sure does have this one mucked up. It's unbelievable how incredibly stupid this current behaviour currently is but it really just shows how desperate the political situation actually is at this point. Imagine a windfall profit tax while at the same time admonishing the industry for not spending more capital. Never mind that spending more capital will have no near term effect and that no prudent company will spend money on anything requiring more than a 3-5 year payout, never mind a return on investment.
At what point does it become not-crazy to start worrying that we might get price controls and rationing?
 

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I don't think price controls nor rationing is in the cards. The last experiment some 40 years ago was pretty much an unmitigated disaster.

What I think might/could happen is some kind of lump sum credit (or similar) to households to subsidize fuel costs. IOW, those with a big V8 quad cab pick up, big engine sports car, or 3 row SUV need to feel the pain, and those with a Honda Civic/Toyota Corolla may end up with no net household budget damage. After all, it is the lower income folks most likely to be hurt by fuel costs. Those with the audacity to own gas guzzlers need to pay the price. Similarly with house heating fuel, especially those on NG or propane. That can be done by a credit on utility bills (in absolute amounts, not price per GJ used). IOW, whack-a-mole the heavy users to help alleviate the pain for all.

Lest this feel mean.... be aware such a system would affect my household personally. Big house, heated pool, and somewhat thirsty ICE vehicles.
 

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I don't foresee rationing occurring unless supply dries up completely. I think price controls are a bad idea as well. Putting in price controls without reducing fuel tax will be political suicide. I believe that market forces will act as necessary in most cases. Those that want to consume should be willing to do so at market rate. There are some(not sure how many but I do sympathize) that live in the range that necessary consumption will severely affect their cost of living. There are already people that have to choose how to pay for life's necessities on a regular basis. Anyone participating on this forum is not likely part of that demographic. A lot have gotten used to having enough discretionary income that they have a lot more allocated to wants than to needs. A healthy dose of perspective readjustment may not be a bad thing. Yes it sucks but decisions have consequences. Sometimes they work in your favour and sometimes they don't It's time for those that were not spending with reckless abandon to know their efforts were not in vain. I do not want to see cheques cut by the government to the citizens. I would prefer that real longer term solutions are found to economic problems. Sometimes stimulus is needed(definitely less than has been recently practiced) but you can't spend your way out of every problem. If your only tool is a hammer then every problem looks like a nail.
 

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Discussion Starter · #60 ·
North American lifestyles are very energy and resource hungry. People have gotten a free ride for a very long time. Energy costs should be much higher. Even gasoline is still pretty cheap in the big scheme of things.

We can easily see gas prices double at the pumps I think. People will adjust; our gas prices are pretty cheap today.
 
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