Energy Sector And Crude Oil Price Update

The prospects for energy stocks and Crude Oil prices remain unclear for the next six months as the United States works through its current liquidity problem and the potential second half of the 2023 recession.

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Oil prices have been bouncing from their lows of $63.76 per barrel and now trading above $73 per barrel. We could see further sharp illiquid spikes below that level as we did in March this year, especially during a recession. In this case, I believe not losing the crisis opportunity is essential for us.

Recession fear and risks of liquidity are here, but the chances this scenario is short-lived are high. With the SPR already drawn down to multi-decade lows and OPEC+ willing to cut production to defend this price level, it’s a decent risk/reward to assume that prices will pop back to the prior $74 and $80 levels.

Stocks never became particularly expensive even when oil was $120 in 2022, and thus have held up well even as Crude Oil has corrected back to sub-$80. Even at these middling oil price levels, many large-cap oil producers make good money and trade at low valuations, which makes them able to pay high dividend yields, buy back a lot of shares, and strengthen their balance sheets.

In my private section, we have already positioned ourselves in the sector as a defensive approach in very profitable companies with great valuations and high dividends and not speculating on opening and closing positions in the investing portfolio.

In the short term, we like to trade Crude Oil price swings up and down-side. However, based on the reasons above, I favour buying more than shorting it. The long-term bullish idea is also well supported by the technical view I have.