As the proverbial dust from hurricane Harvey starts to settle and the literal storm waters continue to secede, investors — and energy investors in particular — can start to assess the storm's impact and what it may mean for oil and gas prices going forward.
Unfortunately, the picture isn't crystal clear yet, though it might be more accurate to suggest the picture is clear enough to know now's not quite the right time for long-term investors to plow into energy stocks.
That's how BigTrends.com's founder and President Price Headley explained it to CNBC [1] this past weekend anyway in a discussion of what a post-Harvey and post-Irma world might look like for the oil and gas market. Headley said of the initial price surge that's yet to abate:
"I think there's definitely some stabilization. You know, more than 20% of the country's refining capacity was affected by Harvey in Texas, so you definitely have that initial shock. Gas prices have spiked up. They were hanging around $2.00 a gallon in much of my area here, and now they're up in the $2.60 area. That's a pretty good spike that's so far holding, but I do think it's going to be interesting to see if there's any further fallout. Irma probably won't affect it too much being over on the other side of the Gulf of Mexico (which isn't a major refining area). "
It may be difficult to differentiate that potential fallout — higher gasoline prices stemming from higher oil prices — from price increases that were already underway.
Though the echoes of a painful oil glut are still ringing, as of April, oil supplies finally began to fall in earnest [2] as a string of capacity cuts finally took effect. Natural gas supplies, though still rising, are well below where they've normally been for this time of year… heading into cold winter months.
The waning supply served as a boost for oil prices, even if not until June. That's when a downtrend finally reversed course and carried crude from a low around $42 per barrel to a peak of $50 in early August. Though prices have peeled back in the meantime largely because shuttering a wide swath of the nation's refineries crimped demand more than it crimped the supply coming from wells, that crimp was always going to be a temporary one. Crude oil has recovered from its Harvey-driven low of $45.70 in late August to its current value of $48.80 per barrel, and is still being pressured higher. The jolt Headley mentioned seems to not only be stuck, but perhaps inspired a rekindling of an uptrend that actually began in early 2016.
Still, Headley's not entirely convinced the ensuing rally of energy stocks in step with crude prices is going to keep making its beeline move higher. He added "I think it's going to take another couple of months of tax-loss selling before those energy stocks are really a golden buy, but that's going to be one of my value plays at the end of the year here."
In other words, one more sizable pullback should finish the job, clearing the decks for a more prolonged recovery move.
And Headley's trading what he's preaching. He further explained to CNBC " I don't own any of them right now, but I've been in and out of them over this last week — Halliburton (HAL) and Schlumberger (SLB) for some quick trades to catch the pop and then get back out."
He's not going to remain out of energy stocks for too long though, recognizing that while Harvey may have served as a wake-up call for how compelling these names were becoming, the downside of Harvey would be a short-lived affair. Headley made his long-term outlook very clear, noting:
"Basically, I think that you're seeing oil prices start to stabilize here, and that's one of my interesting, positive investment areas right now… energy markets and energy stocks, because they've been so beaten up that if oil prices stabilize or keep firming up here, there's money to be made across the big energy stocks."
Timing may be the key, but at least crude oil prices have made it clear where it's line in the sand is. Not only is the 200-day moving average line (green) likely to eventually act as a buy trigger and a floor, crude prices are on the verge of punching through a falling resistance line (red, dashed) that's been pushing prices lower since February.
[3]
If that technical ceiling breaks at the right time — ideally later this year rather than soon — it could set the stage perfectly for the value-driven rally that's been building up for a while. The stabilization of crude prices are just one step in the process.
You can watch and listen to the entire CNBC clip here [1].