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March 24, 2020
Big gains in today's markets, because there's lots of optimism about the US Congress pushing through a massive relief bill for working Americans who are staying at home to battle the virus. Also, there may be negotiations between the US and Saudi Arabia over the oil war. We face two black swans: COVID-19 and the Saudi-Russian oil war. Also hitting energy stocks earlier was a mild winter, depressing oil demand. Until China, Europe and South Korean restore demand, the storage costs for just holding existing oil will continue to skyrocket. The bottleneck in oil will be not just selling it, but shipping it. This will be the problem in April for Canadians and the Saudis alike. WCS oil: C$12 doesn't even cover operating costs for heavy oil. so he expects many more shutdowns of oil production. By late-April, the worst of this oil shakeout should be over. If the virus is tamed by May/June, oil should rise to $30-40/barrel, and the price in the second half of 2020 will depend on the wider economy. To pick an oil stock now, look at their balance sheets and cash flows last year. Natural gas prices haven't been hit as hard during all this. If oil prices rise in the second half of 2020, which he predicts, the 2020 average will be in the low-$50s. Oil companies have no choice but to cut dividends except those with strong balance sheets like Tourmaline and Birchcliffe. Energy infrastructure stocks are very cheap now and will bounce back.
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Big gains in today's markets, because there's lots of optimism about the US Congress pushing through a massive relief bill for working Americans who are staying at home to battle the virus. Also, there may be negotiations between the US and Saudi Arabia over the oil war. We face two black swans: COVID-19 and the Saudi-Russian oil war. Also hitting energy stocks earlier was a mild winter, depressing oil demand. Until China, Europe and South Korean restore demand, the storage costs for just holding existing oil will continue to skyrocket. The bottleneck in oil will be not just selling it, but shipping it. This will be the problem in April for Canadians and the Saudis alike. WCS oil: C$12 doesn't even cover operating costs for heavy oil. so he expects many more shutdowns of oil production. By late-April, the worst of this oil shakeout should be over. If the virus is tamed by May/June, oil should rise to $30-40/barrel, and the price in the second half of 2020 will depend on the wider economy. To pick an oil stock now, look at their balance sheets and cash flows last year. Natural gas prices haven't been hit as hard during all this. If oil prices rise in the second half of 2020, which he predicts, the 2020 average will be in the low-$50s. Oil companies have no choice but to cut dividends except those with strong balance sheets like Tourmaline and Birchcliffe. Energy infrastructure stocks are very cheap now and will bounce back.