2024 has started positively. If you believe in the January Barometer – which says that the first few days of the year set the tone for the rest – this could be a good sign. Although looked at objectively, the January Barometer is more an old legend than a real trading rule.
www.investopedia.com/terms/j/januarybarometer.asp ritholtz.com/2013/01/the-myth-of-the-first-trading-week-of-the-year/
While most of my portfolio is invested in Financials, it also contains one Energy position, $BP.L (BP)
BP shares were penalised in the fourth quarter due to a significant, trading-related Q3 earnings miss.
However, the company continues to earn lots of money for shareholders. The cash flow yield investors get from the shares is in the double digits.
With oil companies, a key variable is always the price of $OIL itself.
In 2023, Brent oil traded in the $70-90 range, with little overall movement. Most analysts expect a similar range for this year.
Although oil demand has already recovered from the pandemic, oil supply has also grown. US shale producers produced more oil than predicted in 2023, and Brazil and Guyana will be leading capacity additions over the rest of the decade.
Overall, so much production capacity has come online that producer cartel OPEC has had to resort to supply cuts to defend the oil price, leading to significant OPEC spare capacity being available. Oil prices may have some downward risk if Saudi Arabia decides they want to reignite the fight for market share and punish higher-cost producers, as they did in 2014 and in 2020.
Another risk is that the war in Ukraine ends, bringing Russian supply back to the market.
Regardless of these risks, oil companies are so attractively valued that I view them as one of the best sectors to invest in for the long run. But to get an optimal entry point, I’d like to see some of the risks above to be realised, leading to lower oil prices. Oil companies could then be bought at a discount.
It seems that many of the best-performing sectors this decade have been “instability” sectors such as Defence and Oil. Well-timed investments in these sectors, and others that benefit from uncertainty such as Gold, should yield good profits over the coming years in the new, more unstable economic environment of the 2020s.
finance.yahoo.com/news/wall-street-main-street-tax-205157682.html
2024 performance YTD
@triangulacapital +2.0%
$SWDA.L -1.5%
Portfolio changes
None
