Some analysts say energy stocks are getting too hot


The consensus opinion amid Iraq's convulsion is positive on energy stocks and negative on U.S. retailers and other consumer stocks given that oil prices are likely to remain elevated and provide another headwind for consumers already struggling with slow wage growth and high personal debt.

The S&P 500 energy sector is up 5.4% in the past month as Brent crude has climbed, and up 10% YTD; with the strong correlation between oil shocks and economic recessions, concern is growing that Iraq's chaos could derail the global economy.

But some analysts are beginning to say energy stocks are too rich and could quickly give up gains if the Iraq crisis is defused; Oppenheimer's Fadel Gheit says oil stocks are overpriced and are trading as if crude was going to stay at $110/bbl.

"If they can hold onto Baghdad and the south of Iraq, 3M barrels will continue to flow and it won't be a big deal," said Again Capital analyst John Kilduff, while admitting that "any credible threat to central Baghdad or the oil fields - it's $150 just for starters."

ETFs: USO, OIL, XLE, UCO, ERX, VDE, OIH, SCO, ERY, FCG, XOP, DIG, DTO, BNO, DBO, GASL, DUG, IYE, IEO, CRUD, GASX, PXE, USL, PXJ, UWTI, DWTI, DNO, FENY, RYE, SZO, FXN, OLO, DDG, OLEM, TWTI

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Comments (17)
  • SoldHigh
    , contributor
    Comments (991) | Send Message
     
    "Drill, baby, drill!"

     

    (domestically and in N America!)
    16 Jun 2014, 07:34 PM Reply Like
  • Grant Dossetto
    , contributor
    Comments (200) | Send Message
     
    Hmmm...even the oil bears are hedging and saying it could go to 150...contrarians must be licking their chops.
    16 Jun 2014, 07:42 PM Reply Like
  • Hank890
    , contributor
    Comments (1973) | Send Message
     
    Domestic US producers are fine, and nowhere near over-priced; capability is climbing. The possibility of $150 oil seems very remote,...there is plenty of crude supply, inside and outside the US, and US stocks of refined products for the summer are high.
    16 Jun 2014, 07:47 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (10735) | Send Message
     
    The U.S. Navy is not going to allow a group of ragtag religious psychos to stop the flow of cheap crude from the East to the West.

     

    Everybody calm down.

     

    I'd expect a couple more carrier strike groups to enter the region before this is all said and done.
    16 Jun 2014, 08:14 PM Reply Like
  • PalmDesertRat
    , contributor
    Comments (3629) | Send Message
     
    Why would they stop the oil? They need the cash as badly as the other guys.

     

    I've been taking some oil stock profits off the table.
    16 Jun 2014, 09:02 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (10735) | Send Message
     
    Terrorists, especially in Saudi Arabia, have long dreamed of disrupting oil shipments thus crippling the "infidel" regimes they are trying to overthrow.

     

    This ISIS terror army has half a billion dollars so they aren't desperate for oil money.
    17 Jun 2014, 09:17 AM Reply Like
  • PalmDesertRat
    , contributor
    Comments (3629) | Send Message
     
    Half a billion is nothing. Look how much mdt is paying for covidien.
    17 Jun 2014, 09:23 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (10735) | Send Message
     
    Huh?
    17 Jun 2014, 09:24 AM Reply Like
  • PalmDesertRat
    , contributor
    Comments (3629) | Send Message
     
    If that's too difficult for you to grasp, here's another example. OXY pumps more than that out of Iraq in less than nine months, and oxy is not a major player in Iraq
    17 Jun 2014, 09:35 AM Reply Like
  • PalmDesertRat
    , contributor
    Comments (3629) | Send Message
     
    Even simpler: $500 million is $13 per capita in Iraq.
    17 Jun 2014, 09:41 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (10735) | Send Message
     
    PalmDesertRat:

     

    You are talking about a whole country's economy...I am talking about a trans-national terror organization. Apples and oranges.
    17 Jun 2014, 01:12 PM Reply Like
  • Joe Lunchbox
    , contributor
    Comments (601) | Send Message
     
    If Iraq goes off line or diminishes, does that make the offshore drillers (like SDRL and RIG, etc.) increase to pick up the slack? Am I wrong in thinking it's a yin and yang thing where less at point a requires more from point b? And what about the oil tankers like NAT? Will higher priced oil help their bottom line and increase their business?

     

    I'm just thinking out loud here and seeking opinions. Please excuse my inexperience. I just thought it might lead to an interesting conversation.
    16 Jun 2014, 08:55 PM Reply Like
  • Ajayyy
    , contributor
    Comments (325) | Send Message
     
    I think offshore drillers will do well in an environment of high crude prices. It doesn't necessarily have to do with becoming a substitute. If there are supply constrictions then prices will go up and that is what will really light the fire under offshore drillers (and all drillers in general).
    16 Jun 2014, 09:14 PM Reply Like
  • sethmcs
    , contributor
    Comments (3514) | Send Message
     
    The market likes to turn macro events into trades. The offshore market is more complex. Planning for a off shore site might take years. Rigs must be moved sometime half way around the world. In other words it takes time and money to develop off shore reserves. So oil majors cannot turn on a dime to expand off shore oil but neither can they turn it off. Rigs are leased often for years at high day rates. Knowing that I picked up SDRL on the recent weakness and damn near caught the bottom at average cost of $33.66.
    16 Jun 2014, 11:51 PM Reply Like
  • Patent News
    , contributor
    Comments (1458) | Send Message
     
    Baghdad is NOT falling. lots of hype to drive up oil prices. Gulf countries are laughing all the way to the bank and oil speculators
    17 Jun 2014, 01:46 AM Reply Like
  • Ajayyy
    , contributor
    Comments (325) | Send Message
     
    Why are Gulf countries running to oil speculators?
    17 Jun 2014, 02:22 AM Reply Like
  • Hendershott
    , contributor
    Comments (1687) | Send Message
     
    It's not hype, just cold calculation. Iraqi oil production is less secure now. Worst case, Iraq becomes like Libya. No effective government, militias run regional areas, oil production has come to a screeching halt...200kb/d lately. The risk to Iraqi production gets factored into the market in the form of higher prices. As the risk rises or falls, so will the price of Brent. If Baghdad falls, the price will spike. If the Iranians start kicking ISIS ass, the price will fall. A protracted conflict will elevate Brent prices. The blessed offset for WTI is the shale production in the US. That's where we should be invested. Eagle Ford, Permian Basin, Tuscaloosa Shale.
    18 Jun 2014, 10:05 PM Reply Like
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