Today, The Weekly Buzzing Stocks by Billy Kawasaki and The Panic-Proof Portfolio (Stockchase Research) commented about whether DE-N, EPD-N, SM-N, MTDR-N, REPX-N, BP-N, WMT-N, RIVN-Q are stocks to buy or sell.
Investors are disappointed at $70 oil, and they should be. He had more bullish expectations coming into this year, with biggest disappointment being Chinese demand. Very few people would have forecast Chinese demand to be negative YOY for a couple of months. Thankfully, there are signs that it's now inflecting. One big energy trader believes that Chinese demand will be up 700k barrels per day next year.
It's kind of a moral victory. His call is that global oil inventories (his measurement of the balance between supply & demand) would hit all-time lows. And we're there today, which is great. Global inventories are at their lowest since at least 2017, US inventories are at the lowest since 2016.
In the olden days, used to be a very strong relationship between inventories and the oil price. As inventories fell, the price would go up. Today, looking at where oil "should" be, it should be about $81 WTI. But it's trading just under $70. There's a disconnect.
Why the disconnect? Market's concerned about 2025 and peak demand being right around the corner, demand weakness continuing, US shale surging, other countries like Brazil coming online, and OPEC ramping up to maintain market share. He feels that the market's a little too bearish on demand, US shale production is flat (Trump will see peak production over the next couple of years, a huge event). Plus, Trump will be ultra-hawkish on Iran exports, giving OPEC the chance to add barrels eventually, which will be the beginning of normalization of OPEC's spare capacity (not as high as people think).
Demand is fine. Just look at the US economy, which is going like gangbusters. Supply expectations are too high. Market is tighter. Between $70-80 is reasonable over the next 12-18 months. You need Saudi to bring some of those barrels back to market.
He remains very bullish on the outlook. There can't be an energy transition when the demand for oil, nat gas, and coal continues to make all-time highs. Governments and organizations basing their constant negativity on ignorance warps sentiment about investing in energy, which translates into the valuations we see today.
Sentiment remains challenged in the space (a common theme today), even though the Energy Index is up about 20% YTD. People are hiding in large caps, with few funds coming to small- or mid-caps. Hard to see it outperforming. Yield is 10.7%, pretty hard to replace. Not a name for new money.
Look at his Top Picks today, and then decide if you want to let this go for tax-loss selling.