My number one choice to prepare for a raw jump

I’ve been saying for weeks that I expected crude oil to fall based on questions about demand, particularly from the US and China, the world’s two biggest oil consumers. It did, and despite a bounce after dipping below $70, there could still be a little more downside room for that trade. However, oil will come back at some point, so I took some of my profit from the short trades and looked around for oil-related stocks to buy.

However, because I’m still not convinced that a real recovery in crude prices is imminent, I’ve been looking at downstream companies rather than anything in the E&P space. As you probably know, falling prices can actually be a boon for refiners and oil traders because they increase the “crack spread,” the difference between what they pay for crude and what they get for the refined products they sell. Despite this, when crude oil is in a downtrend based on demand questions, downstream stocks will still fall, but the advantage of the crack spread means they will often be the first to recover if that feeling starts to change.

There’s reason to believe that could happen soon enough.

In an attempt to strike a middle ground in American politics, Kamala Harris has recently taken a much more fossil fuel-friendly stance on energy policy. I’m not one to trust any politician to do what they say they’ll do, but the Democratic nominee’s public abandonment of anti-oil rhetoric will at least…

I’ve been saying for weeks that I expected crude oil to fall based on questions about demand, particularly from the US and China, the world’s two biggest oil consumers. It did, and despite a bounce after dipping below $70, there could still be a little more downside room for that trade. However, oil will come back at some point, so I took some of my profit from the short trades and looked around for oil-related stocks to buy.

However, because I’m still not convinced that a real recovery in crude prices is imminent, I’ve been looking at downstream companies rather than anything in the E&P space. As you probably know, falling prices can actually be a boon for refiners and oil traders because they increase the “crack spread,” the difference between what they pay for crude and what they get for the refined products they sell. Despite this, when crude oil is in a downtrend based on demand questions, downstream stocks will still fall, but the advantage of the crack spread means they will often be the first to recover if that feeling starts to change.

There’s reason to believe that could happen soon enough.

In an attempt to strike a middle ground in American politics, Kamala Harris has recently taken a much more fossil fuel-friendly stance on energy policy. I’m not one to trust any politician to do what they say they will do, but the Democratic candidate’s public abandonment of anti-oil rhetoric will at least lessen the fear of an all-out war on oil if she wins the election and Donald . Trump has made his pro-fossil fuel stance a keystone of his campaign. So the overall, long-term outlook for US demand is not as bad as it was just a few weeks ago. And in the short term, it looks increasingly likely that the Fed will ease policy and cut interest rates soon, which will ease recession fears and make an oil rebound a little more likely.

As for China, the latest data was somewhat encouraging, which was part of the reason why oil found a bottom, albeit perhaps a temporary one, just below that $70 level.

As I said, I’m not entirely convinced that we’ve seen the absolute bottom of this move, but a break below $65 now looks pretty unlikely, so picking up some shorted shares on the downside at these levels seems like the logical thing to do made. The one that catches my eye the most for both value and safety is HF Sinclair (DINO) in Dallas, TX.

DINO is down over 20% over the past 6 months and over 30% from its April high, but as I write it is trading close to its August low of around $44. That’s a decent entry point for a stock where the value is obvious to anyone looking.

For starters, trailing and forward P/Es of around 7 and 8 suggest value, but there are other valuation measures that are even more compelling. The current price represents a price/book ratio of 0.86 and a price/sales ratio of 0.27. These are the numbers you usually see when a company has cash flow or liquidity issues, but none of those things apply to Sinclair.

They have positive free cash flow of nearly $1.7 billion and a current ratio of over 2, indicating not only that they are safe, but that maintaining the dividend, which represents a forward yield of 4.5%, should be relatively easy for them. These facts have made DINO one of the picks for Forbes’ “Safest Dividend” model portfolio, which is a bonus, but the main motivation for getting involved is capital appreciation.

Given the strength of the balance sheet and good cash flow, it won’t take much of a change in sentiment around oil for DINO to bounce back, and if a bounce does begin, there are enough new shorts to result in a squeeze. The number of shares held short jumped from 8.19 million at the end of July to 9.47 million at the end of last month, with the short ratio (the number of days of average trading volume needed to cover those shorts) climbing to 5. like a move up so to speak. $50 would quickly become an upside move above $55, which would be my initial profit-taking target and a re-evaluation of the position.

No transaction, even one that was good for you, lasts forever, and this is especially true when it comes to goods. They have a well-known self-correcting tendency built into the simple theory of supply and demand. At some point, before too long, this self-correction will happen in crude oil, so take some profit short and invest in a potential rebound, albeit something that can still work if oil resumes its downtrend for period, seems like a smart move. right now. That’s what I’ll be doing in the next few days, and DINO will be my starting point for this transition.