4 Comments
Mar 9, 2022Liked by Arjun Murti

Hello Arjun, great material as always. It seems to me the most pressing question now is whether the invasion-induced price spike destroys demand and tips economies globally into recession, thereby bringing oil prices down, and what effect that will have on share prices of oil companies. If $140 brings demand destruction over, say, the next six months and we get a recession, what happens to the share prices of US E&Ps over the next six months? The next year?

If these US E&P companies are tracking the price of oil shouldn't their share prices decline along with the price of oil? Or would you say that they are beginning a new cycle, the top tier ones have high ROCE's, and so their share prices will continue to rise/stay high as oil remains above $100?

From what I understand, you seem to favour the latter position - that top tier high-ROCE US E&Ps should have rising share prices for the next year or two, assuming oil prices stay above $100 over the next year or two.

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Thank you Investor for your comments...always very much appreciated. So I have refrained from giving explicit trading/investment advice on Super-Spiked, especially since it is sometimes hard to tell whether someone is a professional investor as I would have historically dealt with or a retail investor.

But I would say this: Based on my history with the sector, if the oil price fell sharply, for whatever reason, it is likely oil equities would fall along with the oil price. There is really not much escaping the shorter-term inherent volatility. And in fact my "Super Vol" perspective recognizes that likelihood for the commodity. But I do think if one has a multi-year (2020s) kind of view, I would expect the sector overall to become a larger portion of the S&P 500 versus the 2% trough it reached at the end of 2020. It is now back over 3.5%. It likely doesn't get back to say 15% as it was in the early 2010s...but there is a lot of room in between. Along the way, there will be significant volatility for commodities and the equities. And of course, energy could outperform by virtue of doing better than a falling S&P 500 (not a prediction, just a point to make). So it all really depends on what you are trying to do. Some investors are good at trading the vol...others are more buy-and-hold, or anything in between.

Sorry for the generic answer, but I of course don't know your exact situation and definitely am not trying to give trading or investment advice on Super-Spiked. Rather, I would hope that you and others find the information useful and consider it one of hopefully many sources on an informed discussion about the energy sector.

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Mar 9, 2022Liked by Arjun Murti

Great, thank you Arjun.

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Mar 9, 2022Liked by Arjun Murti

Hello Arjun, great material as always. It seems to me the most pressing question now is whether the invasion-induced price spike destroys demand and tips economies globally into recession, thereby bringing oil prices down, and what effect that will have on share prices of oil companies. If $140 brings demand destruction over, say, the next six months and we get a recession, what happens to the share prices of US E&Ps over the next six months? The next year?

If these US E&P companies are tracking the price of oil shouldn't their share prices decline along with the price of oil? Or would you say that they are beginning a new cycle, the top tier ones have high ROCE's, and so their share prices will continue to rise/stay high as oil remains above $100?

From what I understand, you seem to favour the latter position - that top tier high-ROCE US E&Ps should have rising share prices for the next year or two, assuming oil prices stay above $100 over the next year or two.

Expand full comment