Our calls on crude-oil prices over the past year have been spot on for the most part. Although our macro calls haven’t saved our Portfolios from the carnage, we have avoided many of the worst performers, used hedges to provide some upside protection and set ourselves up to profit from the down-cycle’s final chapters.
We began to grow concerned about a potential downdraft in the price of West Texas Intermediate (WTI) crude oil in late 2013 and added American Airlines (NSDQ: AAL) to the portfolio as a hedge in January 2014. (See Commodity Price Outlook for 2014 and Buy the Friendly Skies.)
A year ago, the consensus outlook called for a V-shaped recovery in oil prices after the selloff in late 2014, with far too many pundits remembering the sharp rebound after commodity prices collapsed in late 2008 and early 2009.
We warned investors to regard any bounce in oil prices in spring 2015 as a head fake and called for the commodity to retrench to $40 per barrel in 2015 and average $50 per barrel for a prolonged period. Based on this out-of-consensus call, we highlighted a number of names that benefit from a decline in crude-oil prices, including American Airlines, Royal Caribbean Cruises (Oslo: RCL, NYSE: RCL) and two convenience-store operators. (See The Demand Side Beckons.)
And in early 2015, we updated our forecast for crude-oil prices, calling for WTI to slip to as low as $30 per barrel over the coming year, followed by a modest recovery to a trading range of $40 to $60 per barrel.
In late April, we reiterated our skepticism regarding the spring rally in oil prices and energy stocks and suggested that investors take advantage of additional rallies to pare exposure to weaker names. We reiterated this call on several occasions in May and June, emphasizing that oil prices hadn’t bottomed yet.
These concerns prompted us to add ProShares UltraShort Oil & Gas (NYSE: DUG) to the model Portfolio in July as a way to hedge against the likelihood of further downside in energy stocks.
This exchange-traded fund (ETF) delivers two times the inverse daily move in the Dow Jones Oil & Gas Index—in other words, the fund rallies when energy stocks decline. Investors who heeded our repeated calls to add this position sit on a 45 percent gain.
More recently, we reiterated that Saudi Arabia wouldn’t waver in its strategy of privileging market share over oil prices; the run-up to OPEC’s most recent meeting in December 2015 yielded a bumper crop of ill-considered arguments about why the organization would change its tack.
And last month we updated our outlook for WTI, warning that the benchmark could slump to between $20 and $25 per barrel in the first quarter of 2016, followed by a recovery to the longer-term trading range of $40 to $60 per barrel in the back half of the year.
Your complete guide to energy investing, from growth stocks to high-yielders.
In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Jun. 30, 2020
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.