Oil companies can be a relatively safe haven in the interest rate storm

If it is now going down properly due to high (mortgage) interest rates, weak economy, reduced scope for consumption and less money left over for consumption and investments, then both retail trade and workshops are weak cards in the near term. Stocks likely have to go down before stimulus gives room for new rallies. The oil companies are also cyclically sensitive, among other things due to lower energy demand in recessions. Lately, however, the price of oil has gone up. It signals that there is a supply problem in the sector. The producers do not seem willing (or able) to increase production. They would rather sell the oil expensively but at a lower volume than squeeze out volumes at unnecessarily low prices. The large American oil giants ConocoPhillips, Exxon, Chevron and the slightly smaller Occidental can all be interesting in this context. At the very least, one should gradually increase their holdings on weak days. Despite lagged negative demand effects of the ongoing interest rate storm, energy is not something you can do without. As producers hold back, there continues to be a demand imbalance with buyers overweight. Since energy is something everyone must have, higher oil prices are required before some buyers find alternatives or some producers finally whip up more production. The big oil companies could most certainly be the winners.

The XLE energy index has fluctuated moderately between $75-85 this year

The XLE energy index (in USD), five year weekly chart

Exxon, for example, has only risen 6.5 percent this year, half as much as oil prices despite substantial operational leverage. At the same time, Chevron has actually fallen by 6 percent. Conoco has been largely flat this year, and Occidental is up 3% both last week and year to date. Since June, WTI oil has increased from 67 to 91 dollars per barrel, i.e. plus 36 percent. Investors seem unusually doubtful about the development. There seems to be great upside for the shares as long as the price of oil does not fall sharply.

A surprisingly cold winter and potential Russian export restrictions could provide further support to high oil prices. If you dare to go out on the risk spectrum, there is, for example, the medium-sized Brazilian company Petrobras as an alternative. The Price/Earnings P/E number is officially very low at 3-4 times earnings, but the price has risen 50% in the short term so you need to have strong nerves to dare to buy the share right now. In Sweden, there is also the smallest company Africa Oil, but it only has a market value of one billion dollars. Africa Oil is awaiting concrete results from the Venus project. Despite a recent setback in an adjacent well, it appears possible that the company will soon be able to demonstrate a deposit in the Venus project. Both Africa and Petrobras could have significant upside without being expensive. Repurchases can help in that process.

Crude Oil WTI Nov 23 (in USD), one year daily chart

Crude Oil WTI Nov 23 (in USD), five-year weekly chart

Note that both the oil price and the XLE energy company index have done quite well in the last three months, so there is certainly a risk of a setback. However, unlike most other stocks, I believe that dip buying could pay off quite quickly in this sector. The low valuations in absolute terms also provide staying power if the prices should fall, for example due to rotation to other sectors or sales aimed at an increased proportion of cash or reweighting to other asset classes such as bonds, real estate or commodities.