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The Oil Gods Love Storms

If you believe what you see on TV, then hurricanes and tropical storms are big buying opportunities in the oil sector. Timing, however, is everything, and for the casual trader it’s almost impossible to get right. You have to be fast and you have to understand the data because there’s a lot of conflicting information.

Let’s take a quick look at the current situation. Oil just hit $80 a barrel, the highest it’s been in recent years. Why? 1) Geopolitical issues (looming Iranian sanctions). 2) Fear that hurricane Florence might disrupt supply in the East Coast of the United States. But these fears are always overblown, which is why market fundamentals matter. And right now, there no real shortage of oil. This is a sector driven by speculators.

Take a look at the energy sector instead. Energy stocks are essentially flat and many quality names trade at a discount. Companies like Cenovus Energy (CVE) are seriously undervalued relative to current oil prices. This points to a huge price discrepancy that could provide serious upside if you are willing to wait. Sure, you can speculative directly via oil ETFs, but you’re going to be chasing something that has already enjoyed a big run-up. And that’s usually a losing proposition.


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