Triple Short Term Crisis of Oil & Gas Stocks （屋漏偏逢连夜雨）

Posted on March 9, 2020 Written by
oil & gas stock crisis

Global Oil & Gas sector has been under crisis mode over the past 6 years, Brent crude oil fell from US$115 (year 2014) to $27 (year 2016) per barrel, about 25% of peak price, a very low optimism for the past 2-3 decades, ending the mega bull run for commodity market (including crude oil, gold, agricultural products, etc).

Over the past 4 years, crude oil together with commodity market in general has been struggling with recovery in prices, achieving an intermediate high of US$86 (year 2018), falling down again to $50, then gradual growth, stable between $60-$70 in last 2 years with joint effort by OPEC and non-OPEC (eg. Russia) oil producer countries to control the oil supply, in an attempt to stabilize the market prices.

Unfortunately, Crude Oil is currently facing triple short term crisis over the past 2 months:

1) Coronavirus

There is less global demand for crude oil. There is less manufacturing in countries such as China which is a major energy consumption country. Some global airlines also cut down flights by more than 30%.

Less demand = Lower price for crude oil.

2) Fall in global stock market

Fear driven stock market fall (especially in US) has affected the confidence of global investors who also invest or trade crude oil, anticipating lower demand for crude oil.

Bearish emotion = Lower price for crude oil

3) Political Conflicts (OPEC vs non-OPEC)

After expiry (end of Mar 2020) of agreement on production cut, it is possible for supply for both OPEC and non-OPEC to increase significantly. Of course, it is possible for interested parties to extend the collaboration but their influence would be weaker each time. The global market share of crude oil could be taken by countries who may not follow the agreement (eg. Iran which needs cash or US with shale oil as new major exporter with lower cost per barrel).

Higher Supply = Lower price for crude oil

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As a result of triple short term crisis, Brent Crude Oil drops to US$45/barrel currently. $40-$45 is an important support zone (low prices during 2009 global financial crisis), if breaking below $40 while there is no quick solution in a few months with reversal for 3 short term crisis above, it may challenge the last long term support, $27/barrel recorded in early 2016 during the earlier Oil & Gas Crisis.

If so, global Oil & Gas stocks would be under price pressure, falling back to low optimism again. Upstream Oil & Gas sector (eg. exploration of oil) would suffer the most from falling in oil price, following by integrated oil & gas companies. Mid-stream (eg. storage and delivery of oil & gas) and Down-stream sectors (eg. refinery, processing of petro-chemical) would have less impact on its business. Careful selection of Oil & Gas stocks are critical, especially if the current Level 2 (Oil & Gas sector) crisis may be combined with bigger scale of Level 4 black swan (Global Financial Crisis.

Oil & Gas stocks are generally cyclic in nature due to fluctuation of oil price, therefore better to position with Buy Low Sell High strategy, more suitable for trading.

“Crisis is Opportunity” is true only if one knows What to Buy (giant stocks), When to Buy (timing, too early may catch the falling knife) and When to Sell in future (taking profits or potential cut loss if trading in an uncertain global stock market at high optimism).

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Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)
Filed Under: Commodity Market, Macroeconomy, Stock Market Tagged: , ,

3 Strategies on Oil & Gas Stocks Investing

Posted on January 31, 2019 Written by
Oil & Gas Stocks
Winter time (low optimism) of crude oil is longer than expected, after recovery over the past few years, it corrected down again over the past 1 year, recovering again over the past few months. Many oil & gas stocks, especially for upstream sector, revenue of business is very much dependent on crude oil price, therefore the cyclic business performance has resulted in cyclic share prices.
 
For oil & gas stocks, besides business fundamental, success in stock investing or trading is mainly dependent on alignment with prices of crude oil which trends are time-dependent. Here are 3 strategies for 3 different types of investors with 3 different personalities:
 
1) Long Term Investor (decades): Uptrend (Low Optimism)
Unlike stock market with market cycle of about 10 years, crude oil is a commodity which has a much longer market cycle of 20-30 years, therefore a very long term view (decades) is required. Crude oil is a critical energy related commodity, its price could not drop to $0 as a commodity (possible for stock in crisis), therefore it is a giant in nature. Similar to property, long term trend of crude oil is increasing over the decades, currently at low optimism (potential buying zone). However, if an investor does not have holding power, could make a loss as buying low could ending up lower if holding power is weak.
 
Currently, the second dip over the past 5 years have established a higher low which is a strong support to crude oil long term investor. However, since global stock and property markets are at moderate high optimism, if the next global financial crisis is triggered by another asset class of investment market, commodity market could be affected despite the optimism is not high as global funds are connected through common pool of investor with money.
 
Therefore, it is relatively safer to hold a shorter term position, applying trading on oil & gas stocks. One could compromise to become a “short term investor”, i.e. buying strong fundamental oil & gas stocks as if an investor but buying or selling the stocks by following the price trends in shorter term as if a trader. This is an integration of trading into investing in view of global economy and stock market.
 
2) Medium Term Trader (years): Uptrend (Moderate Low Optimism)
Medium term trading is a compromise between investing and trading. Current trend is uptrend at moderate low optimism with recovery in prices of both crude oil (commodity) and oil & gas stocks over the past few months which is ideal for trader who is interested in buy low sell high for capital gains. However, since the market uncertainty is high (eg. unknown on outcome of US-China trade war negotiation by 1 Mar 2019), a trading plan with S.E.T. is required: Stop Loss, Entry Price, Target Price.
 
Despite focusing in trading, a trader could consider strong fundamental oil & gas stocks (eg. growing or recovery in earning and cashflow), avoiding stocks with relatively high debt (eg. Debt/Equity >> 1) which may not last through the winter time of crude oil.
 
3) Short Term Trader (months): Downtrend (High Optimism)
Over the past 6 months, for short term traders (buy low sell high every few months), the current trend for oil & gas stocks is downtrend at high optimism, aligning with direction of crude oil. The probability is higher for shorting, especially when supported by some negative financial news (eg. US-China trade war, UK Brexit, China economy slowdown, bankrupt of another oil & gas company, etc). Similarly, shorting in short term requires a trading plan with S.E.T., except the strategy is reversed (making money when price is falling). A trader who is not comfortable with shorting (higher potential risk when not managed properly) may also adopt a “Wait” strategy, waiting for stronger uptrend of crude oil and oil & gas stocks.
 
Of course, for very short term traders (weeks or days), there are different trends and optimism. There are always trends within trends, depending on timeframes of investing which is personality dependent. Therefore, before an investor or trader plan on position of stocks, should strongly consider own holding power, risk tolerance level, reward expectation, emotional control, etc.
 
Interested readers may learn from Dr Tee free 4hr course to construct a dream team stock portfolio with global blue chip stocks (including oil & gas crisis stock investing). Register Here: www.ein55.com
Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)
Filed Under: Commodity Market, Market Outlook Tagged: ,