Trading in technology and healthcare has been a struggle. Even the fintech stocks have been shedding dollars.
While this tech misery has been building, energy, especially the oil patch, has come alive, starting a massive rally. The fundamentals are simple. The world is slowly recovering from the pandemic, the world’s population is growing, lagging nations are developing, OPEC+ nations need more oil for their citizens, and consumer electronics are predicted to double by 2030.
The real elephant in the room is that the U.S. is about to throw a trillion dollars into an infrastructure rebuild. Rebuilding the nation’s highways and bridges is going to take a lot of energy. It’s the perfect dynamic for energy—fossil and non-fossil—and it should be a long ride.
Fossil fuel—oil and gas—are in early-stage bull runs. Crude is about $80/bbl, OPEC and Russia won’t expand production much, and winter is coming. A strong case can be made that the old 2014 highs of $140/bbl will be taken out. Maybe not immediately, but in a couple of years.
Fossil fuels—oil and gas—are the clear early winners. XLE, the sector ETF with a good mix of companies, is in a full bull move, testing yearly highs (if you want leverage, try GUSH). It should pause here as it pushes against resistance. Look to pick it up on a pullback.
Non-carbon fuels—solar and so-called clean energy—has sold off like tech. But as the market stabilizes, they will come back strong. The transition from carbon to carbon-less energy is underway, and has a way to go. The transition will take decades.
Despite that, watch TAN, the solar ETF. Its testing a bottom but should recover as governments increase incentives in response to climate change. Another ETF I like is ICLN, slightly less robust but at a much lower price point.
The market, like the TikTok audience, is always chasing the bright new thing. Tech is out and energy is in—long may it run.
6 Comments
Claudio D.
Hi Grant-as always enjoying your wisdom. I also see it the same way.
Jono W.
Well put Grant, I totally agree.
Being on the inside (live and work in an oil town) we’ve been bulls since the beginning of the year but no one spotted this sort of rally coming. Looking around here I think the industry is being very slow to react. Part is not trusting the prices will stick around after over 7 years of pain, another part is we’ve fired half the staff, and even more on the planning side, so getting stuff done is now slower. The third part is little access to capital markets as companies are being pushed to use cash flow to pay down historical debt loads not borrow to drill more wells. Budgets may get increased this coming year compared to last but not meaningfully by historical standards.
One thing I do track is DUCs (drilled but not completed wells) in the US. I’ve no idea why any company would drill but not complete a well, but that has been the trend in the US over recent years. I can tell you there are currently approx. 5,250 wells drilled but standing awaiting completion. They are mostly in the Permian and Eagle Ford plays. These are much cheaper to get onto production than a new well so will provide some inventory to stretch the available capital and help stave off the natural decline. However, it’s no secret that Permian wells decline at 60-70%/yr (!). A typical 1000bbl/d well will only produce 300-400bbl/d by the end of its first year. US domestic production is made of a huge proportion of this type of well. ~1,500 DUCs have been completed since Jan this year so they are keeping things in check just now, but the best wells get done first and without a significant uptick in rigs becoming active that underlying well decline will manifest itself at the country level.
Global demand is increasing, OPEC didn’t move their position this week, and Russia is playing “Roulette” with gas delivery to its neighbors in Europe as they struggle with intermittent green energy sources and LNG delivery outages. All adds political instability.
As an industry veteran and having lived 3 energy cycles so far, I’m hoping this is my “last hurrah!”, but I’m looking to lock in my home energy prices just now for the next 3yrs to try to mitigate the coming volatility.
Jono
Steven P.
Grant, Thank you for posting this. My Signals were telling me about a week ago to trade and I did not. Lesson learned. Glad you mentioned it still can be in the early stage, will look at it with “new eyes” instead of the “miss”
Eric G.
I just joined spike after following Dr Elder for years. I am not a weekly trader (yet) but paying attention to market signals is very useful and I would say benefits long terms traders more so than weekly traders. The real money is made long term. Energy appears to be in the middle of another long bull run after the March 2020 bottom. It will be a volatile ride so it should benefit weekly traders as well as mid term investors. My favorite companies right now are VLO, PSX, CLR, IMO, EOG, SU and VET. Trade them like you traded tech companies in the past! Look at their charts and see if they fit!