Selling U.S. Oil Stocks now

On July 30, 2020, I warned of lower prices amongst the shares of the larger American Oil companies, 

At that time, when Exxon Mobil (XOM) was trading at $45, I made a call that Exxon Mobil would trade down to $33. 

By October 30th, 2020, XOM shares had steadily declined 26% to $32.

This note was written with a sense of juxtaposition that while I was bearish on the share prices of the ‘oil majors’, I was bullish on the actual price of Crude Oil.

A month later (on August 20, 2020), I wrote more about this divergent analysis and I listed 5 stocks which I felt would suffer declines.

Those 5 stocks each declined between 25% and 50% from mid August 2020 until October 30th, 2020.

Meanwhile the price of WTI Crude Oil stayed between $37 and $43 per barrel throughout that time.

Beyond XOM, the other 4 companies on that list included Chevron which eased from $85 to $66, ConocoPhillips declined from $39 to $28, Occidental fell from $17 to $10 and APA (Apache) tanked from $15 to $7.50. 

Now I hear of many broking houses reiterating their ‘overweight’ stance on energy.

Today, I am saying that ‘Going Long’ Oil and related energy stocks doesn’t present the best odds.

It is dangerous adding or entering new ‘long’ positions at current prices.

Since those late October ’20 lows, Crude Oil has rallied significantly and those leveraged free-cash flow oil companies saw their stock prices rise between 3 and 6 fold. Occidental’s shares soared from $10 up its present level of $63, Exxon Mobil has rallied from $33 to $91, Chevron has advanced from $66 to $167, ConocoPhillips rose from $29 to $104 and Apache (APA) climbed from $8 to $40.

Supportingly, WTI Crude rallied from $43 to todays’ price of $108, while Brent Crude moved from $45 to its present price of $111.

And when you consider that WTI Crude  (if we exclude that monumental March 2020 negative -$40.00 price print) has moved up $100 per barrel from that a normalised low of $10 seen soon after that swoon.

I don’t recall any broking houses issuing Buy Advice back then when WTI Crude was trading at $30, $40 or $50, let alone $10.

Today, I hear them calling for $200 Crude Oil.

I’m not trying to call an exact a peak but in terms of probability, it is ‘too late’ to initiate meaningful ‘long’ positions.

Be care chasing Warren Buffet and Berkshire Hathaway’s recent 13F filing announcements about their (increased) Chevron & Occidental holdings. You’ll need to dig deeper when they acquired them and under which terms.

It is the season to Trim, Adjust and Sell.

Exxon Mobil’s shares are now trading at 44% above its their 200 weekly moving average, which is a level not seen for 14 years and is in the percentage range which prompts consolidation or a retracement in the stock price.

The time to be bullish on energy stocks and energy commodities was in Q3 of 2020…..not now !

The ‘fat part’ of the trade has been had.

May 20, 2022

by Rob Zdravevski

rob@karriasset.com.au

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