Heading into August, the smartest advice I’ve taken has been to back away from markets. Volumes are weak, interest is small (particularly in an election year), and the temptations get large to do stupid things with your money – you’ll see many supposed sure-fire “opportunities” that can turn quickly south in thin markets.
That’s why I hesitate to get further involved in even prized oil stocks here, despite the fact that a mounting gasoline glut has allowed oil prices to decay under $42 a barrel and taken some US E+P’s down to seemingly tasty levels. I’ve seen this show before, and I don’t want to fall for it. It’s an uneven picture: Some of our stocks are at levels that would beg for a bit of adding, like EOG Resources (EOG) at $78 a share, or Cimarex (XEC), getting closer to $110. Others are holding up surprisingly well even as oil has dropped more than $8, like Anadarko Petroleum (APC) (which reported fantastically well) at around $54, or Continental (CLR), which refuses to trade under $40 again. This kind of ‘mixed bag’ of signals has me ready to head out to the beach as well and leave the portfolio just as it is for now.
It’s hard to do. The drop in crude prices has all the boo birds back in business, claiming a new downtrend that won’t see oil significantly rally again for at least a year. Goldman Sachs is one house that has claimed this in a note today. Morgan Stanley, despite recognizing the massive drops in production that will come from non-OPEC and US supply in Canada, Brazil and Mexico and recognizing that those supplies make up more than 50% of global oil, still don't see a significant supply shortage until mid to late 2017.
These kinds of notes from the major banks could have you wondering whether you’ve come too early to a global oil supply squeeze that almost everyone recognizes is on the horizon.
I say you’re right on time.
One idea to think about, while we’re lounging on the beach, trying to ignore the low volume zigs and zags of the markets in an election year, is the complete validation we’re seeing of the Saudi plan to regain control of the oil market. Only today, Halcon Resources (HK) joined 67 other US E+P’s since 2015 to declare bankruptcy – and remember, this was a company run by the oil seer Floyd Wilson, who delivered Petrohawk in the Eagle Ford to a $15b sale for shareholders in…