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Energy Stocks Hit 6-Month High as Valuations Spike To 1999 Peaks
Hope springs eternal. The S&P Energy sector is surging once again this morning as crude prices top $60 with stocks now back at Nov 2014 levels (up 12% in the last month). What most do not realize as they blindly follow the momentum, excited that 'something is working' is that the valuations - based on analysts' forward earnings projections - have only been marginally higher than this once... right at the peak in 1999. The S&P Energy sector trades at a 28x Fwd P/E!
Everything is awesome...
And Expensive...
Charts: Bloomberg
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Fail. You're supposed to buy cyclical stocks when the valuations are terrible. Anyone who bought oil stocks in 1999 made a killing.
Thumbs up. That point seems to be missed here consistently.
Also, if you are going to get hot and bothered over gold and the ultimate collapse of fiat currency, a barrel of oil, it is hard to see why oil shouldn't be $60 or even $500 a barrel.
bingo, especially if you are consuming more than you produce. Unlike gold, silver and oil have industrial utility. Oil being the lynchpin for many industrial products as well as the single most calorie-dense substance you can carry around...
I went without power or the ability to buy gasoline during a hurricane for 2 weeks once. No refrigeration for food for 2 weeks, no heat in 30 degree weather. Life gets very primative very quickly when you have nothing to eat and the water in your toilets/pipes starts to freeze. It makes you realize we take for granted inexpensive plentiful energy. If I could store oil, I would buy a lifetime supply at these prices. As Einhorn pointed out, the fracked US oil can't come out profitably when prices are low and it won't. Look at the reduction in rig counts over the past 6 months.
next up is oil"price".com telling us why oil should be @ $160 a barrel. with no mention of collapsing economies from one end of the planet to the other nor more oil being pumped everyday. their articles would be more in tune to the times should they tackle the fact that one or two trading desks can run stop the price at will.
Define "collapsing", do you really think growth can go on forever in a biosphere that has finite physical resources? You do realize that there are numerous biochemical cycles that require a tremendous amount of energy input (most of that coming from the sun) and that must keep turning in order to simply maintain life as we know it.
Better get the fuel ready for those fusion reactors ASAP and get them online ASAP.
FYI- taking about "prices" in the absence of price discovery is a fool's errand. Do you not believe in simple supply and demand. Right now the U.S. consumes far more than it produces when it comes to oil, period. As you point out, bullshit paper games, so who the fuck knows what the "real price is? That's the fucking point.
He needs to look at a chart of world oil consumption before using words like collapsing.
http://www.schwab.com/public/schwab/nn/articles/Black-Dog-Are-Plunging-Oil-Prices-a-Positive-or-a-Negative
I'm not disagreeing with you on prices in the short run. They can get hammered to $30 or run to $75. Not calling a bottom either. My point is that world demand keeps growing and we have seen that it is not economic to grow oil production in the U.S. at $50. If it were, they wouldn't have cut rigs so rapidly and by such a large amount. ZH is great, but cyclicals stocks do not trade based on PE. The trailing PE is always huge in the down part of the cycle. It doesn't mean there is 50% additional downside in the energy group because the PE is high on down cycle earnings.
The price of stocks and commodity contracts has nothing to do with the real global economy. Real demand is not growing. Demand for yield through anything that can be traded is. That is driving prices up. Sorry but any data point coming from any government agency is pure bullshit and so is anything coming from Wall Street. The demand for contracts is distorting the true consumption figures.
The Chinese economy has cratered. The reason why the Shanghai stock index is soaring is because the factory owners can't make money producing real product anymore and have moved on to gambling in the stock market to make profit. Just momentum chasing monkeys hoping there is a greater fool around the corner. Take it from me, they are desperate for orders and some aren't even trying anymore. A factory that makes bags for me is closing two of their Chinese plants and moving everything to Vietnam. 5000 Chinese workers are out of a job.
The import numbers for fall inventory are pathetic. That is because there is so much left over from last fall. Q1 was a total loss and there isn't anywhere to put anything. The secondary sales market is overflowing with product and discount wholesalers can't take the excess inventory. You are witnessing an absolute collapse in the global supply chain all because 90% of the people can't afford to buy anything other than essentials.
FAIL - demand for oil has been growing, just not as fast. See link above. Demand for bullshit paper promises and plastic crap, not so much.
Thanks for the thoughtful comment. There is global overcapacity and speculation in markets going on all over the place, no doubt. It is exactly what you would expect when Japan, Europe, the US and China are pouring on stimulus at crazy levels for years and years. There is a scenario where everything really goes down the tubes and central banks are probably facilitating and moving that timeframe forward, if anything.
As for oil, it had already experienced a large price decline and capacity was rationalizing. With the stock markets hitting new highs, energy was an area that wasn't and had declined and it is hard for anything to go down with central banks doing what they are doing.
As we have all learned, the financial markets and the real world are two different things. Eventually, they meet, but with every increasing intervention it may not happen in the near future.
then you have zh articles talking about immaenent qe4.
i don't think that is priced into oil right now and should it occur, oil will skyrocket.
the end game is not hyperinflation. which happens everywhere. the end game is supply dries up as currency war breaks into trade war breaks into real war.
prices are hard to predict for the purpose of speculation because both demand and supply of goods are dwindling as supply of money can ONLY go up. so even if demand is crashing we know historically prices only rise in the end because supply of money and supply of goods are essentially inversely related over time as debt endures and rots.
WTI at $70 would be a .381 retrace of the drop from $112 to $44. Prices haven't even recovered to this low level and everyone has bought in as if it's a full recovery coming. There is no cure for stupidity.
yes, yes, are we "energy independent" yet?
It looks more like a consolidation. Finally we are heading to $10.
You're supposed to buy cyclical stocks when the valuations are terrible. Anyone who bought internet stocks in 1999 made a killing.
No. Internet stocks in 1999 were not considered cyclicals, they were considered growth stocks. As we know, most weren't even viable businesses, so that was a growth stock bubble and mania.
Established names in energy that provide gasoline, jet fuel, natural gas, refine, produce chemicals, etc have been viable profitable businesses for decades. The values of the stocks flucuate with energy prices and profits which have just been cut in half or more.
..have been profitable businesses for decades ... until they aren't. Projecting the past on the future is just stupid.
Without profits, energy doesn't get produced. A world without energy, plastics, chemicals, pharmaceuticals? Good luck with that thesis.
How did your shale oil stocks do today? LOL
Look at the bonds crashing and tell me it's a good idea to buy the equities of the same companies. Lots of knife catching morons.
Ignore that sky high P/E behind the curtain. I am the mighty petrodollar.
Algos and coffee
Gonna party like it's 1999!!
P/E has nothing to do with actual extraction and delivery. You know that. More paper games... nothing more.
Some people will have access to the consumable calories required to maintain a decent standard of living, most will not...
same as it ever was...
He's talking about PE. Why are you rambling about calories? Cash flow does matter for all businesses. If you can't make payroll, there will be nobody to extract and deliver your oil.
Paper money and binary shenanigans as far as the eye can see!
Yeah, oil has risen too much too fast, on no fundamental data.
All hail Einhorn!!
"on no fundamental data." -- LOL! The U.S. is still consuming about 8 million more barrels per day than it actually produces...
Yes, there is a back-up at the refineries, but we use oil in a lot more than simply transportation...
good thing summer is here.
The US used to consume 15 million more barrels than it produced just 10 years ago. LOL
there will be MOAR
Oil...it's what for breakfast today!
well, it certainly is what provides and delivers that breakfast to the vast majority anyway.
The dollar is dropping.
The dollar is dropping.
Yes, or perhaps, the dollar is simply being dropped...
hard to tell.
SO what happens when the cost of everything is more than what 99% of the world can afford?
As proven over and over again in the past decade, real global trade collapses with oil above $50 a barrel. $3.00 gasoline sucks far too much out of the pockets of working people, coupled with Obamacare and skyrocketing electric rates you need to be making more than $80k a year just to get by. Unless of course your plan is to not work and have the government pay for everything.
In March the utility companies around me doubled the rates and hit people with $600 a month electric bills. Nobody can afford that so they just didn't pay. By law the utilities can't shut off power to a home during the winter so people continued to use power and rack up huge debts.
The market exchange commodity contract premium is killing everything globally. Trying to front-run the next QE in the hope someone else will pay more for the contract you bought this month is not a viable strategy for returning real organic economic growth. Every dollar increase in commodity contracts sucks $10 out of the global economy. That is why we have rampant inflation and destruction of purchasing power. An absolute collapse in the paper price of every traded commodity is necessary. If that means a lot of corporations go bankrupt, so be it. Others will figure out how to make money on the new price. I have a suspicion that the only people who would really be affected by the paper collapse of commodities are the over leveraged investment banks.
A funny thing happens when prices drop. People buy more. If it costs less to produce widgets and you can sell them for less while maintaining the same profit margin, you'll make more revenue. Doesn't anyone else see the correlation between inflation and the collapse of an economy?
"SO what happens when the cost of everything is more than what 99% of the world can afford?" --
What a moronic question. obviously it depends on whether or not that "something" is essential to life or not.
Let me be clear people, there is not, nor will there ever be an economic, fiscal, monetary, or political solution to resource scarcity. You either 1) accept the lower standard of living or 2) innovate (which requires resources and capital) or 3) take the population down to a lower level.
Wake the fuck up already.
Essential or not if people don't have the money they can't buy it. Oil was essential in 1984 when it dropped 80% and stayed down for almost 20 years. Oil. Was the world not growing back then?
The ruble is strengthening too. Of course the ruble is naturally somewhat responsive to the price of oil, but it is a little shocking just how great the correlation appears to be today.