Energy stocks – Heed the siren’s call

The oil and gas (energy) stocks are overcrowded.

As an illustration of only one measure which I use, the annotations on the chart below show the percentage that Hess Corp is trading above its 200 week moving average.

As you can see, the elastic band is looking a little stretched.

Go take a look at a bunch of stock prices of similar companies from Marathon, Occidental to Exxon and check if they are trading at similar extremes.

The call for ‘stronger and longer’ for energy stocks is fraught. This may be a good script for those who are ‘long’ at much lower prices, but if this ‘stay overweight energy’ news is reaching you now and with your ‘new money’ perhaps buying at these current prices…..

be aware of the siren’s call.

The contrarian was buying Brent Crude at $40, not $125.

Buying oil or energy related stocks at current prices, doesn’t provide you with an attractive risk/reward metric, let alone an adequate margin of safety.

In Hess’ case, what are looking at?

$30 up or $30 down…..this is hardly compelling, let alone tantalising.

June 3, 2022

by Rob Zdravevski

rob@karriasset.com.au