“Drill baby drill” is the rallying cry of one of the presidential candidates. The other candidate has recently come out in favor of fracking.
So, no matter who wins in November, if we can believe the statements of politicians (admittedly, a big IF), then Big Oil stands to benefit.
That means the recent selloff in the oil sector could be a huge buying opportunity.
Oil stocks have been among the worst performers in the stock market this year. Chevron (CVX), for example, is trading lower than where it was at the start of 2024.
Warren Buffett’s favorite oil stock, Occidental Petroleum (OXY) is down 9% for the year. And, the oil services sector (OIH) closed Wednesday at its lowest price for 2024.
To put it simply, the oil sector is a mess.
But, it was a mess before the last presidential election as well. The Energy Select Sector Fund (XLE) had declined from $50 per share at the start of 2020 to less than $25 per share just before election day in November.
It rallied back to $50 per share by July 2021.
That’s a 100% gain in eight months on a Big Oil ETF – following the election of President Biden, who is arguably an anti-Big Oil president.
Of course, the oil stocks have been under pressure lately because the price of oil has been declining. China isn’t using as much oil as it did previously. The United States seems to be on the brink of a recession.
So, the price of oil has dipped as the demand for the gooey black stuff has fallen.
Not surprisingly, oil stocks have fallen along with the price of oil.
But, we’re reaching the point where the decline in the oil sector is discounting the worst of all possible outcomes. Many of the big oil stocks are trading at historically low fundamental valuations. And, they’re deeply oversold on a technical basis.
This is the epitome of a low-risk/high-reward setup.
Traders should be looking to add exposure to the energy sector on any weakness ahead of the U.S. presidential election.
Best regards and good trading,
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Jeff Clark
Editor, Market Minute
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Source: Jeff Clark Trader