1) I hope you drive a Toyota Prius or a Tesla the way petrol prices are going. It’s going to get worse too. Brent crude is now US$118 a barrel. It’s up 80% since December.
A war involving Russia will do that.
And yet, oil juniors on the ASX aren’t going as bananas as you might think. It’s hard for me to get my head around that.
It’s possible the market views the spike in oil as temporary, and therefore due to settle back. Or it may be purely that the money is going into the bigger names that benefit first and fastest.
However, I’d urge you to keep watching here.
It reminds me of last year when iron ore went to more than US$200. Some of the trades in the junior sectors were ripping.
But they didn’t all happen in the first five minutes, either. I’m talking 50–100% gains in a few weeks.
I’d expect the same for the oil sector if this situation is not resolved soon. And why would it be?
The Western media is united in condemning Russia and Putin. I know enough history to know things are never as simple as they seem.
Plus, the US has bullshitted us all so many times, from Vietnam to Iraq to Afghanistan that, I, for one, am not going to assume their ‘intelligence’ is suddenly as pure as Mother Theresa.
It’s interesting to observe how little dissent or questioning of this overarching narrative (Ukraine ‘good’, Russia ‘bad’) there is in the mainstream media. Further proof that 99.95% of it is a waste of time.
It’s not as if this is coming out of nowhere. Back in 2014, the West was meddling in Ukraine too.
I don’t pretend to understand most of it. All I know is I don’t trust anything I’m hearing, on either side. Truth is the first casualty of war.
However, we do have to wrestle with its effects on the markets. I’m getting wary. The rise in commodity prices is pressuring inflation up…and up again!
Stocks, in general, at least historically, don’t like high inflation. High costs eat into margins and profits, and the outlook for earnings becomes unstable.
But I can’t deny commodity producers are getting a windfall if they can get to market at these current prices.
There’s a wave to be surfed for now. I have two oil trades for my service, Catalyst Trader. Both are drilling for oil when oil is trading at more than US$100 a barrel. This is how you get share market fireworks!
2) You might also want to keep your eye on uranium stocks. They were hammered last week when news broke that Russian soldiers were attacking near a Ukrainian power plant.
However, if you’re a long-term believer in uranium, it’s not clear this is a problem. You can get very good prices when everybody panics out like that. The volume in Paladin on Friday was huge!
The issue for me is I don’t know anything about uranium. I’m aware of the general run of the argument for the sector (it’s ‘clean’ energy, supposedly, and starved of investment since 2007, etc.).
If I was less cautious, I might just swoop in on the odds they revert to where they were at some point.
However, none of them are profitable, at least as far as I know, and whether the uranium bull runs again, I haven’t the slightest confidence.
It’s hard to believe, but in 2012 a noted resource investor made his case for buying uranium stocks. I watched his presentation.
Here we are in 2022, and they only just showed some spice last year. The previous 11 years were a wasteland. That’s the risk you run buying into themes like that and what keeps me out of them now. I just don’t know enough to hold confidently and indefinitely. If you do, drop us a line and tell me why!
And don’t forget to tune in to my podcast on Spotify here too. I’m talking to an international energy analyst this week to see where he thinks oil and gas are going. I’m not sure if he covers uranium, but I’ll be sure to find out.
Until then!
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: My editorial director Greg Canavan sent around an email last week. With everyone watching Russia and commodities, he said, where isn’t the market looking? Often the best values and opportunities will be there.
My colleague Ryan Dinse says this is where you should be watching for the long term
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