• 4 minutes China 2019 - Orwell was 35 years out
  • 7 minutes Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 11 minutes Trump will capitulate on the trade war
  • 14 minutes Glory to Hong Kong
  • 1 hour China's Blueprint For Global Power
  • 4 hours Boring! See Ya Clowns, And Have Fun In Germany
  • 16 mins Bloomberg: shale slowing. Third wave of shale coming.
  • 1 hour ABC of Brexit, economy wise, where to find sites, links to articles ?
  • 9 hours Crazy Stories From Round The World
  • 2 hours Yesterday Angela Merkel stopped Trump technology war on China – the moral of the story is do not eavesdrop on ladies with high ethical standards
  • 4 hours 5 Tweets That Change The World?
  • 7 hours the future
  • 9 hours Climate Protesters Blocking Roads etc...
  • 3 hours USA Carried Out Secret Cyber Strike On Iran In Wake Of Saudi Oil Attack
  • 3 hours Spain Is On The Edge...Clashes Between Catalonia And "Madrid"
  • 4 hours Leftists crying to make oil patch illegal friendly: 'Broken system' starves U.S. oil boom of immigrant workers: CONGRESS DO YOUR JOBS INSTEAD OF PANDERING!
Alt Text

Oil Prices Fall After Misleading Trade War Rumors

Oil prices fell significantly on…

Alt Text

Greed Or Incompetence: What’s Behind The California Power Cuts?

California’s electricity shutoffs are highlighting…

Keith Schaefer

Keith Schaefer

Keith is the publisher of the Oil & Gas Investments Bulletin – an investment newsletter that looks at opportunities within the Canadian small cap oil…

More Info

Premium Content

Investing Lessons in One of the World's Most Volatile Sectors

One of the biggest questions energy investors face is how to trade volatility.

For example, in a flat to down energy market, professionals often say trading volatility is the only way to make money.

“A flat bear market can give flat performance, but with a lot of volatility,” says Martin Pelletier, Managing Director at Trivest Wealth Counsel of Calgary. “Fifty per cent to 100% swings either way are quite common.

“Unfortunately investors have reacted incorrectly—buying the tops of secular bull markets and selling the lows of secular bear markets.”

Josef Schachter, President of Schachter Asset Management Inc., says “the oil and gas sector has been good to investors—just sell during euphoria and buy during duress.”

Now of course, that’s easier said than done, and to a large degree that separates out the wealthy investors.

But Schachter—who is bearish on oil for the next 3-5 months—says there are some turning points investors should look for in the Toronto Stock Exchange Energy Index.

TSX Energy
TSX Energy Index 5-year chart


TSX Energy Index 1-year chart

“Given how devastated the S&P TSX Energy Index is, if it goes below 180 then it’s a great buy. We would then switch from being bears to being bulls again.

“I look at the market internals. We’re in a bounce wave now. It could go up again, but then it could go below 200 down to 180 maybe. I expect the timing on that to be the 3rd or 4th week of October.”

Are other sectors as volatile as energy?

“From a broader perspective, if you overweighted telecom, utilities and financials you would have best risk weighted return,” says Pelletier, but adds “over the last ten years, if you were willing to accept a little more risk to get better returns, then energy is the best space to invest.”

And that means a little more active trading—even in the senior producers’ stocks.

“Just look at large cap Canadian energy stocks like Suncor (SU-TSX; NYSE) and Canadian Natural Resources (CNQ-TSX; NYSE). Both have shown a lot of volatility through the year, but there’s nothing good for those who bought and held the stock over the past 5-6 years.

“It’s been even worse for junior oil and gas have even more volatility given their greater capital demand. They typically spend 2-4x their cash flow on exploration.

“Therefore buy and holding juniors is not the way to play them AT ALL—you have to trade them to manage risk,” because when the market turns down, they can’t raise money to bridge the gap between exploration spending and cash flow—so the junior stocks get hit really hard.

The junior oil and gas market has definitely turned down—but for how long?

Schachter says, “If they (national governments) face the music (on their debt issues), we could see a multi-year bull market in energy through to 2015-2016 and set all-time highs. But if they just continue to kick the can down the road, then the market malaise could drag out with trading rallies and year end bounces, and you’ll need a trading mentality, as we’ve had a good year then a bad year.”

Pelletier believes there is another 2-3 years to go before the next secular bull market in the major indexes and energy markets—it’s a traders market until then.

But the juniors will once again have their day, says Pelletier.

“Juniors will outperform when the market returns to normality especially those with good management teams with attractive growth profiles.

“Interestingly, there is an opportunity among those who have sold off from their financings. We think these companies will be able to take advantage of this market environment and consolidate. And there are some other stories well liked among my peers which we think are attractively valued—we think it’s important to own stocks everyone likes that are backed up by strong fundamentals.”

By. Keith Schaefer Editor, the Oil & Gas Investments Bulletin




Download The Free Oilprice App Today

Back to homepage



Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play