An attack on an Iranian oil tanker sent oil prices higher, albeit slightly. But the sustainability of energy investing cannot depend on such events. They are temporary and only lift prices temporarily. The market still needs a supply cut and higher demand.
Investors should continue holding integrated firms like BP plc (NYSE:BP) and Exxon (NYSE:XOM). Holding natural gas stocks is proving unprofitable. Antero Resources (NYSE:AR) and Chesapeake Energy (NYSE:CHK) are trading at new lows daily. But oil rig stocks are faring just as poorly.
The sector is highly leveraged with too much debt and needs better oil prices. Until then, rig stocks are short-term trades.
Transocean (NYSE:RIG) traded at yearly lows after the recovery in the sector stalled. And until the company and its competitors like Diamond Offshore (NYSE:DO) or Noble Corp. (NYSE:NE) generate positive cash flow, the stocks will continue underperforming.
On a macro level, the energy sector needs U.S.-China trade relations improving. That will renew economic growth in the two nations and nationally.
That will encourage economic activity and will create a higher demand for oil. Only when oil prices rebound will RIG, DO, or NE stock recover. Until then, trade the volatility in these stocks.
Disclosure: the author owns BP and RIG shares.
