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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (79061)	3/7/2020 9:02:15 AM
From: Goose94	Read Replies (1) \| Respond to of 202691

Crude Oil: The energy sector has been crushed this year as the market struggles to quantify the economic impact and degree of oil demand destruction resulting from the coronavirus. Unquestionably, oil demand in the first and now second quarter will be atrocious (the warmest winter on record didn’t help either). However, how can this be viewed as anything but a short-term event as global oil supply faces several structural (and very bullish) trends that will last for many years? U.S. shale growth is massively decelerating and can no longer be relied upon to satisfy normalized global demand growth (the first time since the rise of U.S. shale growth in 2015). Global offshore production (one in four barrels produced) is entering into a multi-year plateau/decline due to a lack of sufficient investment. OPEC sits on less than 2 million barrels per day (bbl/d) of real spare capacity and budget requirements (and the Saudi Aramco IPO) increase the pressure on them to withhold supply until much higher prices can be obtained. Geopolitical risks remain (though not impactful for now in an epically complacent oil market), with Libyan production down 1.1 million bbl/d this year. In spite of the short-term demand destruction oil is set (once the panic fades) to enter into a multi-year bull market in the second half of 2020 or 2021. Oil was trading at $64 before the coronavirus outbreak due to lessening economic growth worries (the U.S.-China trade deal) and moderating production growth-tightening market. The panic that many are feeling is temporary. When people stop stockpiling toilet paper and return to their daily lives, oil demand will normalize and the underlying strong backdrop for oil will once again become clear. I still believe that oil can trade at $60 by the end of 2020 (and higher in the years ahead). With that as a backdrop, we are buying stocks at less than two times their enterprise value to cash flow (EV/CF) and at free cash flow yields in excess of 25 per cent. These valuation levels are historic. Sentiment is truly deplorable at the moment, but this too shall pass (though not without some more short-term nausea). Eric Nuttall on BNN.ca Market Call Friday Mar 6th @ 1200ET