I tend to agree with your thesis on a correction in energy, but I do not understand why you think gas E&Ps are the best shorts. They own something, whereas service companies do not own anything of value. When the market stops, they stop and their assets are neglected to a large degree making them crash faster than the market. E&P's valuation to operating cash flow is also not bad either, and that is how one measures these companies. The strips are high all the way through next year. Service companies are expensive in my view unless rates keep rising and then, how long will they hold is the key question? Not sure.
Second, the euphoria is typically preceded by all of the things you say, but also by a big blow off phase which I have not seen yet. Fifty-five dollar oil is not the end of the world. Yes it is high, but not by historical standards and not by a percentage of what we spend out of our paychecks in historical terms. So I think we could see waffling back and forth, but I still expect more of a run before the market gives up, unless of course, there is some exogenous event that just changes the current situation for good. JMHO.
I do not own any energy companies right now and have been trading around put options on swings, since my bias is negative due to us being in late April on a shoulder season.
Best regards, |
