How to manage risk when investing in energy

The outlook for the energy sector is overwhelmingly still negative, but it\'s important to remember that the sector does cycle and we are now six years into a bear commodity cycle that is getting a little long in the tooth.

It is rather remarkable how resilient Western Canadians have been despite the collapse in oil and natural gas prices. Perhaps it’s since the forward marketplace is in contango or just that the broader United states equity markets keeps testing new highs.

That said, optimism tends to turn into a prayer when your patience expires and investors, nine months into oil’s correction, are finally beginning to wonder about the outlook for oil and gas stocks.

Company executives were the first one to hit the panic button, as is evident by a few of the recent bought deal equity financings which were done to reduce debt levels even just in an era of ultra-low interest rates.

In the end, we are able to see why they are concerned.

North American oil and natural gas production is defiantly growing despite a sizable drop in the rig count and collapsing prices. Globally, demand growth has yet to reply to the fire sale pricing and also the Organization of the Petroleum Exporting Countries is holding steady using its let-the-market-decide approach.

Overall, it’s rather troubling that a supply/demand imbalance as little as one million barrels per day (a paltry 1.1% of global demand) can slice oil prices in two and stay there for months at a time with limited reaction around the demand side.


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