June 15, 2017
by EstevanOutsider | YA7OO.com
UNJUSTIFIED RESPONSE TO AN UNFAVOURABLE EIA REPORT
So June 14, 2017 after a poor EIA report showing a light drop in crude inventories and slight gain in gasoline was enough to reign hellfire upon Canadian energy stocks like nobody could have predicted. Faint hearted, panicking investors seemingly pressed “sell off” as fast as they could, after watching oil drop 4.5% ($1.50) through the trading day. Previous to that, on June 7, the EIA showed a very alarming and surprising build which also resulted in a massive sell-off. Until June, crude draws were showing strong declines which the energy stocks were evidently responding too–albeit, slowly, compared to how they did in 2016. With the collapse in energy and oil prices, came down the TSX, moving negatively a staggering 200+ points for over a full percentile of its massive wealth. The question is why?
THE SPROTT ASSET MANAGEMENT FUND IS A GREAT EXAMPLE
Today on BNN, they hosted well known energy trader Eric Nutall of Sprott Energy Asset Management Fund. Mr. Nutall’s comments were reassuring to a bullish person like myself (who finds himself -30% on the year) who still believes the industry is due for a massive rebound any moment now. Nutall’s fund is down over 40% on the year, some of his earlier names were: Trican Well Services (TCW), Cardinal Energy (CJ) and also Spartan Energy (SPE), before switching to frac sand producers in the US which have not fared much better. I believe Trican is the remaining Canadian name he holds (-6.98% on the day of June 15, 2017) and 15% on a very disappointing week after having an encouraging month. Mr Nutall reminded viewers that last time his fund was down by 40% in 2016, it rebounded for 120% later that year. He believes that energy investors should be patient and so do I. Unfortunately Eric Nutall does not believe in Canada at the given time, I know he is very pessimistic–and rightfully so– of Trudeau’s carbon tax which has hindered Canadian business and saw a wide scale exodus out of Alberta. Fortunately of the most unfortunate, as Canadian energy stocks have faltered this year, the US energy sector has also performed poorly. That is re-assuring. It mean’s that Trudeau & Notley, Andrew Weaver and John Horgan of the BC NDP have not scared away the entire crowd, yet.
ARE CANADIAN ENERGY STOCKS WORTH IT? ABSOLUTELY!
Very rarely in life will investors have such an easier time at making (all but) guaranteed investments back then right now in the Canadian energy industry. Stocks have depleted to a point where many names are lower then they were at the 52-week lows when oil was in the $20s and some companies were facing financial crisis. Fast forward a couple years, oil is hovering around $50 and most Canadian energy names have posted positive first quarter Q1 results. Why the fear mongering then? Lots of negativity in the industry surrounding the political nature of Canada, i.e: carbon tax, pipelines protests, prospect of US imposed BAT, catastrophic oil prices and the biggest oil crash of the millennium. Talk of Tesla taking over the world, as unsubstantiated and ridiculous as that is, nevertheless has uninformed traders believing the Jetson-style illusions. “Green energy” taking over and killing fossil fuels is getting more air time then ever, despite it, like Tesla, being another very distant illusion that is unlikely to occur in my lifetime. Facts are facts, Canada is the largest supplier to the United States and fossil fuels remain an imperative part of our planet and that will not change for many decades to come, if ever. This is a great time to go long on Canadian energy stocks, you could hold them for a few years and the prospect of them tripling is very possible if not even likely. Oil has a history of not trading at median prices, it tends to be either higher then high or lower then sustainable. Right now, it’s by far, lower then even the guys in Texas can tolerate despite what is reported at times about the Permian profiting at ridiculously low levels. Nobody is winning at these levels long-term.
ENERGY COULD SKYROCKET ANYDAY NOW
There is a real prospect that demand can overtake supply, some people suggest that is already happening now. Saudi Arabia is desperately turning to oil market manipulation, with an apparent looming 35% cut to the United States which should shock the EIA and inventory reports, presumably driving up oil prices and rather quickly. War is on the horizon in the Persian Gulf, any type of armed strife could send oil prices striving. People seem to forget the glut of oil is not natural, it was imposed by Saudi Arabia who flooded the market in a catastrophic fashion to destroy oil prices. The 500+ million barrels in US inventory is not a natural result of normal course of business. This is the result of market manipulation, initially by the Saudis and later by the frackers in Texas who sought revenge against the Kingdom. It would be a very sheepish endeavour to sell off your Canadian energy stocks right now, if anything, now is the time to lower your average cost or a god given entry point if you haven’t invested yet. In just a few months, it wouldn’t be alarming to see a 50% return. Of course, one should be prepared for some downwards volatility as nobody can predict without error the direction of oil.
STAY LONG & DON’T QUIT NOW
It does seem far-fetched in this authors opinion for oil to continue dropping and if it does, not for much longer. A potent upwards reversal, likely exceeding OPEC’s $60 benchmark will, in my opinion, be shattered and that is inevitable. I expect oil to surpass $70s and possibly even into the $80s or higher within a year, but I have been wrong before.
It’s only a matter of time, folks. Be patient and don’t surrender. Share prices are being manipulated and heavily shorted right now. Selling your shares right now will only make other people rich off your hard earned investments. Selling your shares in a year or two, I would expect them to be no less then 100% of what they are as of June 2017, if not even more. Over the next few months, I will continue to fortify my positions until the industry re-emerges.