ExxonMobil Report adds to Questions about Energy Sector
Over-valuing assets to pump up year-end reporting isn’t a new practice. When that valuation is based on assumptions and drilling curves, it’s difficult to contest the numbers. Last week, the SEC made the decision to try. ExxonMobil (XOM) is now under investigation.
It’s old news that’s been buried in this week’s inauguration headlines, but it raises new questions in a sector that’s already rife with uncertainty. We’re already expecting losses as high as 50% from major petroleum players. Will the SEC case cause oil stocks to decline further?
Investors are driven by emotion. Sure, algorithms are responsible for the majority of trading on Wall Street, but the variables used in those mathematical calculations are based on human behavior. When there’s a lack of trust in a specific sector, those stocks will be volatile.
Petroleum Stock Behaves Erratically
On June 4th, 2020, I bought to open on two contracts of Occidental Petroleum (OXY) for $0.16 per contract. Total Investment: $16. Twenty-four hours later, the June employment report came out. It significantly exceeded expectations and the stock market went ballistic.
I sold those two contracts for $320 apiece, making a sweet $600 profit in one day on a stock I basically viewed as worthless. It spiked to $24.40 a share for a weekend. This morning it opened at $21. As far as I’m concerned, it’s still worthless.
Don’t get me wrong. There’s short-term money to be made in petroleum this year. I bought Marathon Oil (MRO) back in December and I’m up $1.50 a share. That’s a free lunch or two. I also own some ExxonMobil (XOM). It’s up $6.50 a share in 2021. How does that make sense?
There’s a reason that Wall Street insiders don’t trust the oil and gas sector. OXY had nothing to do with creating new jobs in June. They were cutting back. XOM is under investigation for a false valuation, yet their share price continues to go up. The sector is too erratic to predict.
Paris Accords will Hit Big Oil Hard this Year
One of President Biden’s first actions after being sworn in was to recommit the United States to the Paris Climate Agreement. He followed that up by rescinding the construction permit for the Keystone XL pipeline, which would have transported oil from Canada to the Gulf of Mexico.
Can you read the writing on the wall? We’ve all known that this was coming, from the moment the election results were finalized. Big oil is about to have a very bad year. By 2024, when a new administration takes over, oil companies will be minority players in the energy sector.
All that being said, I like clean air and fresh drinking water as much as the next guy. I’m also happy with the performance of my wife’s Prius, so I don’t mind driving an electric car. I’ll make some money in oil and gas this year, but I’m keeping an eye on the future.
Analyzing the Gensler Effect on Oil and Financial Services
Gary Gensler, former head of the Commodity Futures Trading Commission (CFTC) and a motivating force behind the Dodd-Frank financial reform bill, has been nominated to be the new SEC boss. He’s expected to face little Congressional opposition to his appointment.
Gensler and Rohit Chopra, the nominee to head the Consumer Financial Protection Bureau (CFPB), will sit on the Financial Stability Oversight Committee (FSOC), a Senatorial sub-committee that oversees systemic risks to our financial system.
Both of these men are eminently qualified with decades of experience in the financial sector. They are also in a position to significantly alter our economic direction. The FSOC is evaluating fossil fuel emissions and their role in global warming, a priority for the Biden administration.
The SEC has been looking into eliminating rebates for trade volume that stock exchanges are currently offering. Remember that Robinhood IPO? They better do it fast. Rebates are how they make money. Taking those off the table will be the end of commission-free trading.
Is it Time to Load Up on Renewable Energy Stocks?
I’m not ready to burn all my oil and gas stocks just yet. An advisor I did some work for in Houston taught me to hedge those with an options-based downside volatility strategy. They also produce fun chart patterns to tease my day trader friends with.
My play this month is electric vehicle stocks, I’ve beefed up on Tesla (TSLA), which continues to astound me, and NIO (NIO), an EV powerhouse that I bought as a penny stock in early 2020. I’m expanding my holdings in this area and will write more about it in the coming months.
Benjamin Franklin once said, “Distrust and caution are the parents of security.” I’m not afraid to take chances, but this time I’m going to advise caution. The energy sector is in flux. Hold what you have. Wait a few months before investing more. Let’s watch what the market does.
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