Stole The Show
Today was supposed to be Black Friday. To the hordes of human beings flocking to shopping malls and countless others that will shop online, it still is. To the trading and investment communities, it will not so much be the "Retail Rumble" between online commerce giant Amazon (AMZN) and now developing hybrid models such as brick and mortar behemoths Walmart (WMT) and Target (TGT) that will headline today's markets. That headline will likely fall to the ongoing collapse in WTI crude prices, and subsequently that impact of this epic crash upon the energy sector.
Yes, we still care about how much market share Walmart and Target can take away from the leader in e-commerce. But let's face it, even if sales at Amazon grow wildly, with a share of e-commerce that some put around 39%, it stands to reason that both Walmart (3%), and Target (1%) will find it much easier to end up with something positive to say. Now, let's get down to business.
Do energy traders hate oil? Is this the end of the bull market for crude that peaked less than two months ago? The answers to those questions are 1) probably not, and 2) umm, yes.
WTI Crude was traded down to more than 52-week lows on Friday morning after a head fake to the upside on Wednesday. For technical traders, crude is filling gaps on the chart that many long ago simply forgot all about. This will be the seventh consecutive week that crude prices lose ground. Why? You name it. Increased production everywhere, in particular Saudi Arabia. Sanctions on Iranian oil that perhaps intentionally left a lot of holes in enforcement, and inconsistent estimates on forward looking demand.
One thing that nobody has to guess on is that stockpiles are rising. U.S. inventories, as reported on Wednesday by the Energy Information Administration, showed an increase of 4.9 million barrels, and have now printed in expansion for nine consecutive weeks.
What Do I Think?
I think market prices for crude are now approaching break-even levels for various producers. Perhaps this slows down the growth of this glut. Perhaps this shows up in rig counts, though that gets sloppy as each individual rig is now far more productive that they were only a few years ago.
As an investor, I really cannot tell you where the bottom is for crude, but I can tell you that we are getting there in a hurry. My exploration and production names, British Petroleum (BP) , Exxon Mobil (XOM) , and Royal Dutch Shell (RDS.A) , are all trading close enough to basis -- and have certainly outperformed oil services names such as Schlumberger (SLB) , another name I hold, and Halliburton (HAL) , a name that I do not.
My intent is that, as my exploration names are all part of my dividend book and trading at a significant discount to Wednesday pricing, I will add to all three of these long positions before the closing bell at 1 p.m. ET.
Am I betting the farm? No. As always, we do these things in increments so that we don't get our faces ripped off. This is simply fishing for dividends that already have at least some history in consistency despite having had to traverse some troubled waters in the past. Safety in catching a falling knife? Let's just call it what it is. A dividend grab.