I don't like being the bearer of bad news... After more than 50 years analyzing the markets, I've learned that opportunities always exist somewhere.
This Oil-Price Story Stinks
By Marc Chaikin, founder, Chaikin Analytics
I don't like being the bearer of bad news...
After more than 50 years analyzing the markets, I've learned that opportunities always exist somewhere.
But we're facing an especially tough market this year. And that means some opportunities come at a cost. That's especially true in the energy sector...
I recently shared a message with my paid subscribers in Power Gauge Investor. I titled it, "You Haven't Missed the Energy Boom."
And today, I'd like to share a bit of that message with you...
Frankly, it stinks. But the reality we're facing is that $100-per-barrel oil (or higher) could be a fact of life for years to come.
After all, it has happened before. Do you remember oil prices after the housing bust?
Most folks have moved on from the minutiae of the economy from those years. After all, the housing bust itself and ensuing global financial crisis fill most people's memories.
But something serious was happening in the energy market back then. And the thing is, we're seeing similar behavior today...
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Take a look at oil prices in the early years of the recovery after the global financial crisis...
West Texas Intermediate crude oil traded between $80 and roughly $110 per barrel from 2010 into 2014. That's roughly four years of oil prices not too far from their current levels.
Now, this is the important part...
Those sustained high prices happened well into the shale-oil revolution. In fact, horizontal drilling – the kind used in "fracking" – started outpacing the more traditional vertical drilling by 2006.
So maybe the idea of $200-per-barrel oil feels a little too "out there" for you. But that doesn't mean oil can't or won't trade between $120 and $150 per barrel for the next few years.
And there's more to this story, too...
You see, the Baker Hughes oil rig count is currently 767. As its name implies, this data measures the number of functioning oil rigs in the U.S. at any given time.
The oil rig count is up a lot over the past couple of years. It bottomed at 176 in August 2020. So that means it's up roughly 335% from its bottom.
That sounds like a heck of a lot. But when you look at history, the perspective changes...
From late 2011 through 2015, the U.S. oil rig count fluctuated between 1,300 and 1,600. And in much of 2018 and 2019, it was higher than 800.
In other words, U.S. rig counts are up significantly from their COVID-19 pandemic bottom. But they still aren't anywhere close to where they should be during an oil and gas boom.
For more proof that the energy rally isn't over yet, we can check supply and demand...
The U.S. Energy Information Administration predicts that the global oil surplus will decline from 3.05 million barrels per day this year to 2.92 million barrels per day in 2023.
Put simply, the energy sector is going to remain tight for the foreseeable future.
Despite that, the sector recently blew off a little steam. Nothing goes up in a straight line forever. Pullbacks like the one this sector just experienced are normal in a healthy uptrend.
Our Power Gauge system just flipped to "very bullish" on the Energy Select Sector SPDR Fund (XLE) over the past few days. And I see further opportunity for investors in this sector.
Good investing,
Marc Chaikin
P.S. If you're ready to take the next step as an investor, you need our Power Gauge system at your side. You can type in any of more than 4,000 different stock tickers and find out in seconds whether its outlook is "bullish"... "bearish"... or "neutral."
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Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-0.19%
5
18
7
S&P 500
-0.29%
111
276
112
Nasdaq
-0.06%
27
46
26
Small Caps
-0.05%
476
961
395
Bonds
+2.41%
Consumer Staples
+1.25%
17
14
2
— According to the Chaikin Power Bar, Small Cap stocks are somewhat more Bullish than Large Cap stocks. Major indexes are mixed.
* * * *
Top Movers
Gainers
BA
+6.13%
PKI
+5.03%
BBWI
+5.01%
EPAM
+4.92%
GPN
+4.63%
Losers
RCL
-7.54%
J
-5.65%
CBOE
-5.56%
FCX
-4.98%
ON
-4.67%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
WEC, INCY, WAT, TAP, LDOS
CMI, CNP, EXPD, PAYC, OXY
MAR, ZBH, XYL, SPGI, SEE, SEDG, PEG, AME, ITW, IT, HSIC, ETN, CAT
Over the past 6 months, the NYSE Technology subsector (XNTK) has underperformed the S&P 500 by -14.57%. Its Power Bar ratio, which measures future potential, is Weak, with more Bearish than Bullish stocks. It is currently ranked #15 of 21 subsectors and has moved down 4 slots over the past week.
Indicative Stocks
SHOP
Shopify Inc.
SNAP
Snap Inc.
SNOW
Snowflake Inc.
* * * *
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This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.
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