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Are You Looking at the Oil Sector the Wrong Way?

Written by Keith Kohl
Posted March 25, 2020

Are you looking at the oil sector the wrong way?

I know it looks ugly from the outside.

And I certainly wouldn’t blame anyone for being cautious, especially when your eyes turn toward a chart of oil prices in 2020.

I should warn you, it’s about as bad as it gets:

oil price drop

But just because the bears are in full control doesn’t mean you can't turn low prices to your advantage. No matter how low oil goes from here, there’s always an opportunity that’s ripe for the picking.

I’ve bought three new oil stocks since oil prices took a running jump off a cliff a few weeks ago.

It was the first in a series of trades that I’ve been waiting a long, long time to pull the trigger on.

Look, I know it’s easy to see the blood in the streets.

In the oil and gas sector, a lot of very difficult decisions are going to be made as companies slash spending across the board and hunker down for the long haul.

Some of those companies learned their lessons from the last price crash and will be able to weather this storm. Others haven’t and are hurtling towards bankruptcy.

That’s what happens when prices fall more than 60% in less than three months.

And despite the bloody waters in the market, all three of those trades are running in the green.

Here’s a look at how just one of those oil stocks has performed over the last four weeks:

oil stock jump

How many stocks do you know that have jumped nearly 70% throughout this mess?

That success wasn’t based on luck, and it certainly wasn’t a secret, either.

In fact, I’ve told you exactly where my trading focus will be during a period of low commodity prices.

If there’s one thing we’ve learned by now, it’s that there’s always money to be made in oil… crash or no crash.

Crude Realities: From Bad to Worse

Don’t get me wrong, dear reader, things are about to go from bad to worse for oil prices.

Not only has the global economy ground to a halt over this pandemic, but this all but ensures that one helluva oil glut is looming ahead.

Rystad Energy recently projected that the greatest supply glut we’ve ever seen in a single quarter is right around the corner, creating a supply/demand imbalance of around 10 million barrels per day.

Its analysis also shows that roughly 76% of the world’s oil storage is at capacity.

Throw in a little production war between Russia and Saudi Arabia, and things look even more grim.

Fortunately, history has a little knack for repeating itself.

The only difference is that this time around, you’ll be prepared.

Like I said, it’s not random luck that certain stocks are able to weather oil price crashes better than others.

Last week, I told you about the growing strength in the tanker markets. If Rystad’s ominous projections come true, and we’re faced with an unprecedented supply glut, those VLCCs will become wildly profitable for large producers that need a place to park their crude.

In the meantime, there are other actions that individual investors like us should be taking right now — finding those hidden gems.

Specifically, we should be identifying those value-priced companies whenever they pop up.

Two weeks ago, I mentioned Valero, one of the largest oil refiners on the planet.

After the 2008 financial crisis, when oil prices plummeted to $26 per barrel, investors were given the opportunity to pick up shares of Valero for under $15.

The availability of cheap crude helped push shares 726% higher over the next decade!

Today, the stock is trading at under seven times its trailing 12-month earnings, offers us an 11% annual yield, and will be poised to make a monster comeback when the world’s economy gets kick-started again.

The first rule in energy profits is to always think long term.

Although we haven’t hit bottom yet, we’re close.

Don’t make the same mistake that many investors made during the last oil crash. The smart money will be perfectly positioned for the next leg up.

I can only open the door… the next step is up to you.

Until next time,

Keith Kohl Signature

Keith Kohl

follow basic@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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