Stocks have become tricky over recent weeks and local reporting season has dominated intra-week swings of individual companies. Hence as we often say it's critical that subscribers understand both our views and reasoning for the path ahead. We are enjoying the feedback around our Monday mornings “Q & A" report format and urge all readers to keep the questions coming. One of our subscribers question was: "Why are MM bullish on oil and what's currently your favourite stock to buy for exposure?" Keep reading for our response, including accompanying charts and analysis.
A very topical question, after our look at Woodside Petroleum (WPL) in the Weekend Report. Oil suffered a massive decline in prices in 2014-5 leading to panic in the oil sector with companies going into administration, or literally collapsing in price e.g. Santos (STO) fell ~75%.
Saudi Arabia attempted to halt the major competition coming from shale gas in the US by simply pumping more oil which brought down global energy prices. Many OPEC members have been decimated by the decline in prices, losing money on every barrel produced. The price war appears to have abated for now, and the market is going through a period of rebalancing.
We are simply looking for oil to retest its best levels of last year ~$US60/barrel, not a particularly aggressive call considering price movements over the last two years. Looking shorter term, characteristics of sell-offs can be very telling – with a test below ~$US40/barrel being rejected.
We like the oil sector at current levels for further 8-10% appreciation. We hold Origin Energy (ORG) in the portfolio with a target of $6.20 and can buy Woodside Petroleum (WPL) for a shorter term trade
Crude Oil Monthly Chart
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