To The Moon

Monday，energy and resources stocks tops the performances of $S&P 500(.SPX)$ index.

$Marathon(MRO)$ ,$CF Industries Holdings Inc(CF)$ ,$APA Corporation(APA)$ ,$Mosaic(MOS)$ ,$Diamondback(FANG)$ ,$Pioneer Natural Resources(PXD)$ ,$Occidental(OXY)$ ,$Valero(VLO)$ ,$Devon(DVN)$ .Regarding Energy area stocks, they have been performed the best since last winter till June compare to other secotors, under the background of inflation concerns and war worried between Russia and Ukraine. 

In this period, oil futures $Light Crude Oil - main 2208(CLmain)$ increased from $35 per barrel in Nov 2021 to above $130 per barrel in Jun 2022.

In June Oil price decreased 8.03%，as of now in July, oil price decreased 7.46%, In about a month from mid-June to mid-July, despite the surge in physical demand in the crude oil market, crude oil futures prices fell significantly, falling more than 20% from their highs, as investors worried about a possible impending U.S. recession. Enter a technical bear market.

 But we just see a 3% rebounce in this week Monday, same to the above mentioned stocks. 

Does this rebounce means a bottom up of oil sector?

Some investors have speculated that oil prices may be bottoming out, mainly because the latest data may coincide with the relative stabilization of the crude market in recent days. 

According to media statistics, short positions in the largest oil ETF $United States Oil Fund(USO)$ have fallen by 14% in the past 30 days, mainly due to aggressive short positions by retail investors. Investors' short positions on the S&P 500 energy sector ETF $Energy Select Sector SPDR Fund(XLE)$ also continued to decline.

At the same time, after weeks of correction in oil prices, hedge funds that bought the dip also started adding to their long positions. In the latest week, fund managers bought long oil-related futures and options for the second week in a row. This suggests that at least some fund managers believe that recession expectations and the recent sell-off in crude oil markets are overdone.

Hedge funds and other fund managers bought a net equivalent of 31 million barrels of crude in the six most important oil futures and options contracts in the week ended July 19. Buying was mostly on new long positions, about 26 million barrels of crude, rather than covering existing short positions, about 5 million barrels.

Hedge funds and other fund managers bought mostly crude oil, not its finished product: they bought about 15 million barrels of Brent crude, NYMEX and ICE WTI crude oil about 15 million barrels; U.S. gasoline, U.S. diesel, European light oil and other finished products did not change much, with net purchases of 2 million barrels, net purchases of 1 million barrels, and net sales of 3 million barrels, respectively.

Note: Even after a streak of net buying, net long positions across all six contracts were relatively low at 485 million barrels, the 28th percentile for the weekly figures since data began in 2013; crude oil positions were particularly low, Only 381 million barrels, the 21% quantile level of the weekly data. The closer this quantile is to 100%, the more crowded the long crude oil is, which is a possible reversal signal.

 6 Reasons on oil will outperform the market if you buy it today

 Ex-Credit Suisse Analyst, PM of the $Grizzle Growth ETF(GRZZ)$ ETF posted on his Twitter

 Owning energy stocks into a recession is usually a bad idea.

He points 6 reasons:

1. The world isn't spending nearly enough on drilling for oil & gas. 70-80% of cashflow is typical. 

We are at 35%, way too little to meet demand.

2. Spending isn't increasing that quickly looking forward either, even with mountains of free-cashflow to reinvest.

The increase in US rigs has basically stalled in July showing producers are still worried about the economy and not in a hurry to ramp up production.

3. Drilled but uncompleted wells (DUCs) are way below normal. DUCs per active rig are 40% below normal.

Even if budgets explode, labor issues and a lack of DUCs mean we are 9-12 months from seeing the supply response. Shale isn't bailing out the world anytime soon.

4. Global oil & gas in storage has been falling all year and is very low across the globe.

Low tanks mean even if a recession kills demand for 12 months, tanks may not refill enough to provide the buffer we need to deal with supply shortages that are likely to continue afterward.

5. The recent selloff has energy indexes off just as much as they were in Sept of 08'. You are not buying at all-time highs.

Most intriguing is what happened next if you bought at these levels in 2008...

6. Even though oil stocks kept crashing in 08' and early 09' energy investors who bought after the first selloff kept pace with the S&P the entire time!

And the supply situation and storage levels are even worse now!

After seeing these 6 charts, Scott now believe energy stocks will see a faster recovery than 2008 during a recession and will outperform the market even if you buy them today.

Question For You

What's your understanding about the data and analysis

How do feel Oil price will continue to drop or rises on supply concerns?