The coronavirus pandemic has ushered in the worst financial crisis since the Great Depression. Add to that the oil production war started by the Saudis and you have the lowest oil and gas prices in almost 20 years! It might seem like a good idea to get out of any investments related to oil and gas production. But, this terrible crisis, like every crisis, will pass. When that happens there will be a rebound. How fast or slowly that happens will depend on how quickly the virus threat recedes and how well the Fed and congress do in supporting credit markets and providing cash to work with. The question that we would like to pose is this. Is this a golden opportunity to invest in energy stocks?
Is This a Golden Opportunity to Invest in Energy Stocks?
Folks who have been thinking along the same lines include Seeking Alpha. In a current article they suggest that you invest in oil now.
COVID-19 seems to see the curve flattening. This is the largest source of the demand drop, so any recovery here would be significant.
We’re forecasting a recovery in oil prices now moving towards the first half of 2021 rather than the latter half of 2021.
In the short term, states may start to loosen restrictions on movement in a month or two, which would increase the demand for oil. This would start the recovery process for oil stocks. And, US oil producers are discussing cutbacks in production in the Gulf of Mexico and the Permian Basin (Texas). OPEC+ has agreed to cutbacks across the board.
However, for many of the oil producers the price of oil is now well below their breakeven point. Many, like Russia and Saudi Arabia, need the cash flow from oil and natural gas production to keep their economies going and to avoid social unrest. Thus, there may be a lot more pain in the oil sector in the coming months up to a year or so.
How Will the Recovery Look for Energy Companies?
The first thing to consider when investing in energy stocks is which of them will be solvent when the coronavirus crisis is over! Those with deep pockets may indeed benefit by purchasing their weaken competitors. We have mentioned in other articles that there is a good chance that the government will finally invest in long term infrastructure projects. If and when this happens it could give the US economy the sort of boost that war production did during WWII. That would increase the demand for oil, the price of oil, and prices of energy stocks. The Motley Fool suggests Exxon and Chevron as good bets for the long term and oil stocks to invest in right now. They have lots of cash and are still drilling with an eye on the future. To the extent that smaller companies have the cash or credit to survive into 2021, they may also be good investments. As always, look at intrinsic stock value when investing in stocks.
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