Read this before you buy energy stocks

Is now the time to buy energy stocks?

Today, I want to examine an interesting discrepancy when comparing the Canadian and US energy producer sector charts. From there, I want to strongly (!!!) recommend you watch my video interview with Lorne Gunter on the Canadian energy industry & current climate policies. All investors exploring the energy trade should see that interview! I’ve attached a link at the bottom of this blog.

Crude oil

First, lets start with crude oil itself. Here’s the longer termed chart since 1999. Many of you old dogs out there (like me) will remember the heady “peak oil” banter and subsequent parabolic rally to $145 into 2008. Note the level of current resistance just under $80 ($77). This price one goes back to the period just before the parabolic rally from 2007-2008.

Fast forward to recent history: Crude oil tried & failed to break $80 in early October 2023. It needs to decidedly break $80 to move towards its old highs. Note the cluster of resistance just under $100 in 2007 (not marked on chart). If Crude breaks $80, $90-$100 would be a reasonable first target.

Seasonality

The Equity Clock seasonal chart suggests an early February entry point for crude. Oil itself has a seasonal tailwind from some point in February to May.

 

 

Producer seasonality

Brooke Thackray’s Investors Guide show that energy producers have a peak seasonal window from late Feb to May 9th.

Here’s the Equity Clock XOI energy producer’s seasonality chart. This chart suggests that mid March is the beginning of the seasonal period for the producers. February or March…Its more important to understand the  tendency for the producers to be higher in May than they were at the beginning of the year.

US producer charts

Here’s the XOI chart for US producers. Note that the index has a significant level of resistance ahead. This lines up with the long resistance near $80 on the crude oil chart, above.

Note that the XOI index is strongly bouncing off of its trendline.  Resistance lies around $1975. The current level of $1870 implies about $100, or about 5.5% to go to that resistance point. A break though that level would be extremely bullish.

Oh, Canada

Here’s the iShares Canadian energy producers ETF, which is a good benchmark chart for the sector. A similar pattern to the US producers – but an obvious underperformance. Note the meandering pattern compared to the US counterpart XOI (above) this year. Current prices sit at around $15.40, and resistance lies near $17.25.

The Canadian producer index ETF is about 12% below its technical resistance, vs 5% for the US producers. So, why the discrepancy?

Very important video interview focusing on Canadian energy

A week ago, I was honored to interview Lorne Gunter, Chief Political columnist with the National Post/Calgary Sun. This was one of the most eye opening interviews I’ve ever conducted – the man is a wealth of  information on the impact of current polies on the Canadian energy sector. He’s also a highly engaging man to listen to – offering plenty of engaging stories and anecdotes to illustrate his points.

All investors looking to invest in the energy sector should watch this video!

Here’s the link: Interview with Lorne Gunter, Political Columnist Edmonton Sun: How climate policies can impact investing – ValueTrend

7 Comments

  • Keith I was disappointed how sharply CNQ went down on Friday (small investor). Do you think the refinery’s shutting down for maintenance will mean they won’t need the oil & therefore the oil price will continue to decline?

    Reply
    • Mark–I normally dont address individual stock questions – but your question ties to a sector. Most oil stocks pulled back Friday–CNQ (we hold) fell a bit. Perhaps more than some, but not outside the group by too much. I think its more sector related

      Reply
  • I have bought several thousand shares in an energy producer that has pulled back to long-term support. I hope to get at least 15% out of the trade. I think the stock could make all-time highs over the next few months.

    Reply
  • Since you have mentioned CNQ, do you think that the stock is trying to break long term support? I think that long-term support would be around $82.50. Would you think that as low as $70 would be possible? Thanks.

    Reply
  • Hi Keith,
    I watched your interview with Lorne Gunter. Well Done. Exactly my sentiment re: government attacks on the oil and gas industry and ultimately on economic future of Canada. I have worked in Ontario for the pipeline industry to deliver fuel for transportation, airlines, heating and industry. I have also worked on site for an oil sands giant and can tell you these companies run tight ships, constantly grinding forward to improve efficiencies in business, as well to protect the environment and the safety of onsite personnel. They are in a battle against an insane government. Dale.

    Reply
    • Thanks Dale. Yes, and yet so many people buy into the state-media supported government BS. Canada needs to produce its clean oil for the world, and for itself.

      Reply

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