[zinfit]

I figure the markets are close to panic mode. Zero rational for the big drop in energy stocks. $118 WTI means they are making a gigantic amount of cash. This current market is taking everything down. There are probably 3 or 4 more hikes by the fed so tightened your seatbelts.

4

 

[james4beach]

I figure the markets are close to panic mode.

I'm not sure. Volume on USO is low and XLE looks pretty average too. Typically in a panic, there would be aggressive selling on high volume.

I think fear and panic could still come to the energy space... it might not be here yet. The sector could be fairly or even undervalued but that doesn't mean it can't get a quick 25% to 40% washout. Who knows though.

I am long XEG as I still think it's the most promising sector. I am prepared for high volatility and think a 25% drop could easily come.

 

[zinfit]

I'm not sure. Volume on USO is low and XLE looks pretty average too. Typically in a panic, there would be aggressive selling on high volume.

I think fear and panic could still come to the energy space... it might not be here yet. The sector could be fairly or even undervalued but that doesn't mean it can't get a quick 25% to 40% washout. Who knows though.

I am long XEG as I still think it's the most promising sector. I am prepared for high volatility and think a 25% drop could easily come.

well you have to have a lot more sellers than buyers to see the declines we have seen. I suspect it is a lot of retail investors who are cashing out. For many fundamentals isn't their strong suit . I expect many of the energy stocks will be buying another 10 or 15% of their stock with this price decline and come the next quarter upping their dividends and may-be paying some special dividends. They have to be sitting on a big pile of cash.

 

[zinfit]

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.

So true and the climate change zealots and Trudeau should be rejoicing because higher prices means lower carbon emissions or am I missing something. Isn't that the rational for the carbon tax. It will make fossil fuels more expensive and therefore discourage its consumption.

 

[londoncalling]

well you have to have a lot more sellers than buyers to see the declines we have seen. I suspect it is a lot of retail investors who are cashing out. For many fundamentals isn't their strong suit . I expect many of the energy stocks will be buying another 10 or 15% of their stock with this price decline and come the next quarter upping their dividends and may-be paying some special dividends. They have to be sitting on a big pile of cash.

A lot that got in 2020 are more than happy to cash out here based on the overall panic you mention. If we see another 10% down in energy and WTI stays at or near current prices I will be adding to my existing positions. CNQ got clobbered today but that's to be expected with the run the oil stocks have had as of late.

 

[zinfit]

A lot that got in 2020 are more than happy to cash out here based on the overall panic you mention. If we see another 10% down in energy and WTI stays at or near current prices I will be adding to my existing positions. CNQ got clobbered today but that's to be expected with the run the oil stocks have had as of late.

I am with you all the ways. When these stocks report in early August I expect we see blowout numbers . When a person is in a recession/ bear market stick with stocks which have growing revenues and earnings and are very profitable with piles of FCF and small and reducing debt levels.. CMQ should be a screaming buy.

 

[Covariance]

I figure the markets are close to panic mode. Zero rational for the big drop in energy stocks. $118 WTI means they are making a gigantic amount of cash.

4

Not saying this is my trade - just providing an explanation of why many would be exiting energy producers. This is a classic sector rotation trade of an investor repositioning for recession. Fed action in conjunction with real time signals of economic activity drives a rule based shift of asset allocation. Sell commodities on expectation of lower demand from contraction of economy.

 

[AltaRed]

The big gains have been made so investors will exit when they see storm clouds ahead and there are indeed storm clouds such as demand destruction in a number of ways, some near term (recession) and others longer term, i.e. conversion to electrified land vehicles. On the latter, we often simply think of passenger cars. The bigger and faster transition may be with commercial and municipal vehicles. Most such vehicles never would go far enough each day to need a re-charge.

The oils thus cannot attract the valuation multiples they have seen in the past albeit it doesn't mean they won't see record share prices short term simply due to the cash flow and earnings they will spin off near term.

 

[Jimmy]

I am tempted to add a little CNQ on the pullback for a st trade. I would like to see oil fall to maybe $100 as forecasts are for $95 for 2023 YE oil. I didn't want to buy when oil was at $120 which seems a peak.

I know they hedge 60% too. Is this a good time to add say a 1/3 of a position ?

 

[Covariance]

I am tempted to add a little CNQ on the pullback for a st trade. I would like to see oil fall to maybe $100 as forecasts are for $95 for 2023 YE oil. I didn't want to buy when oil was at $120 which seems a peak.

I know they hedge 60% too. Is this a good time to add say a 1/3 of a position ?

I added today, along with WCP. Note: Monday US is closed for a holiday. may become thin this afternoon.

 

[londoncalling]

Oil turbulence could last five years, ExxonMobil boss warns (yahoo.com)

"Woods said the project will "bring balance to the global market"

That's a pretty bold statement. In my experience the market is rarely in balance but that would make the cyclical sector rather boring.

 

[AltaRed]

That balance is LNG, not oil. The Qatar North Field is natural gas. It is the largest in the world and shares it with Iran (called South Pars in Iran). North Dome / South Pars gas field

The new project referred to in Exxon's comments is Qatar Signs Deal With Total For Expansion Of Gas Field In Persian Gulf The expansion of 6 additional LNG trains is world scale.

 

[Covariance]

That balance is LNG, not oil. The Qatar North Field is natural gas. It is the largest in the world and shares it with Iran (called South Pars in Iran). North Dome / South Pars gas field

The new project referred to in Exxon's comments is Qatar Signs Deal With Total For Expansion Of Gas Field In Persian Gulf The expansion of 6 additional LNG trains is world scale.

I prefer to stay engage in oil only for this reason. While linked in some ways the price of the two have different drivers, vol.

 

[AltaRed]

I was responding to Londoncalling's post in which the Exxon comment about 'balance' was directed at LNG. Ultimately 6 more trains of LNG out of Qatar will take some pressure off natural gas prices but that won't be for years. It takes quite some time to build that many LNG trains.

 

[londoncalling]

That makes more sense as to what he meant by balance. Thank you. As you stated we won't see the effects for quite sometime but at least there is capital being spent to address tight supply. I have always found it interesting that commodity companies often start these projects at or near peak prices and by the time they come online we are in a different part of the cycle. At least that has been my personal experience with the mining sector over the years.

 

[Money172375]

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.

For sure. Everyone in Europe has a small 4 cylinder car or diesel. Some have larger cars, rare to see a SUV or truck owned by individuals.

Feels like we missed an era of ultra fuel efficient gas vehicles. Trying to go from v6/8 trucks to electrics. ultra fuel efficient gas vehicles nEve really got a shot. Heck, our Honda uses about 5-6L per 100km and still puts out 130bhp. And it really doesn’t have any advanced tech.

 

[zinfit]

A couple of comments. RBC is still bullish on energy stocks. They made reference to an experienced energy trader who says $104 for WTI is the demand destruction price. Otherwise the price would be at $150. I note that some of the US energy companies have just doubled their buyback program.They apparently see no better time to buy back their shares at a very low price. I expect the Canadian energy companies will be doing the same. The energy sector should be very interesting. The recent selling doesn't seem to make a whole lot of sense. I paired back my positions and bought some 2 year GICs at 4.3% in case I am wrong.

 

[james4beach]

XEG is now down 25% from its peak.

Is it possible that we're wrong?

 

[MrBlackhill]

XEG is now down 25% from its peak.

Is it possible that we're wrong?

No, we're in overreaction territory due to recession fears. And the "overreaction territory" means the "buy more territory" to me.

 

[james4beach]

No, we're in overreaction territory due to recession fears. And the "overreaction territory" means the "buy more territory" to me.

Curious how much XEG (or other energy commodities/equities) you hold?

My XEG position is only 0.7% of my total portfolio as outlined here. I figure that I get enough energy equities through the TSX index anyway.

I realize this makes me a lightweight by CMF standards, but I don't want to speculate too heavily on sectors.