Oil Prices, Recession Threat, Overseas Turmoil... and More

Welcome to the latest installment of The Big Interview, a weekly s...

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Oil Prices, Recession Threat, Overseas Turmoil… and More By John Persinos Welcome to the latest installment of The Big Interview, a weekly series in which I interview an Investing Daily "guru" on timely investment topics. This week, I sat down with Robert Rapier, our in-house energy expert and chief investment strategist of Utility Forecaster. Robert has several years of experience in the energy patch; you can usually find him inspecting an oilfield operation somewhere in the middle of the country. He's no armchair analyst. Robert has two decades of in-the-trenches experience in a wide range of fossil fuel and biofuel technologies, including refining, natural gas production, gas-to-liquids, ethanol production and butanol production. Let's see what Robert has to say about the markets. Q: Risks are mounting for investors in the U.S. and overseas. What hedging techniques do you recommend right now? Preferably, these are "defensive growth" measures that afford protection as well as growth. A: One of the best hedges is to be in the right sector for the economic climate. It is widely believed that the threat of an economic slowdown is growing. We are late in the business cycle, and while a recession doesn't seem likely in the near future, my ideal choices would be investments that historically do well during both a mature business cycle and the recession which often follows. The consistent overperformers during the late-cycle are defensive and inflation-resistant sectors: the energy sector (which is booming so far this year, but is also subject to commodity risk), the health care sector, and the materials sector. Two other sectors that generally overperform late in the business cycle are utilities and consumer staples. These are of special interest here because they are also sectors that are consistent outperformers during the recession phase. Q: You're an energy sector expert, with many years of hands-on experience in the oilfields as an engineer. Your energy analysis carries considerable weight. Where do you see oil and gas prices heading in 2019? A: Several months ago, this question was a lot easier to answer. I didn't think the oil price collapse in the fourth quarter was warranted and wrote several articles arguing that it would rebound. Now that oil prices have significantly rebounded, it becomes a tougher call. There are headwinds to oil prices going significantly higher, as prices in the $60s tend to spur a lot of new production (as well as potential production increases from OPEC).

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My 2019 prediction was that oil prices would rise by at least $25 per barrel from the beginning of the year, and I think they have a good chance of getting back to $70/bbl this year. But so much hinges on what OPEC does. I think they want that price level, but they could throw that prediction into chaos by bumping production. Natural gas is much tougher. Demand is soaring, but production has more than kept pace. We went through winter with really low inventory levels, which did lift prices somewhat. But now in addition to production from the Appalachia Basin, a lot of new production is coming online from the Permian Basin. I think that helps keep natural gas prices in check, which I see averaging under $3.00 per million British Thermal Units this year. Q: Which sub-sectors of the energy patch look the most appealing to you now as investment opportunities? A: I have been touting the pipeline sector for at least six months, and it has finally started to move higher. I still think it is significantly undervalued, with a lot of upside, less downside risks, and more income potential for investors. For more conservative investors, some of the supermajors still look pretty cheap to me, especially Royal Dutch Shell (NYSE: RDS-B). Q: Last year was dreadful for investors, with the stock indices racking up their worst performances since the 2009 financial crisis. Do you think the sell-offs are over or do we face further drops this year? A: I think we have entered a period in which we can expect more volatility. There are so many open questions right now that don't have clear answers. Do we get an acceptable trade deal with China, or do those tensions persist? I have stocks in my portfolio that have swung wildly on the ebb and flow of trade news with China. I think more drops can be expected, so I would keep a little powder dry and I would have a short list of stocks to pick up in the event of a sharp drop. I recently picked up some Apple (NSDQ: AAPL) on its most recent drop below $150. I had just about given up getting it at that price, but the deep sell-off in December afforded that opportunity. Q: Are there any perceived risks to the stock market that the financial press is blowing out of proportion? A: I think the risks that there will be a significant interest rate increase this year have been overblown, but they seem to be backing away from that prediction recently. There was also some chatter late last year that the potential for recession is growing, but it looks like we are still a ways from that. Earnings growth will likely slow this year, but the economy still looks healthy. Q: What are the biggest genuine threats to investors on the horizon this year? A: The biggest threat in my view is just the unpredictability of President Trump and his trade policies. For instance, the outlook for U.S. oil producers has improved a lot, but then Trump will go on Twitter and demand that OPEC lower oil prices. That's an unanticipated factor that hurts the U.S. oil industry. Likewise, what is he going to do about China? Does he bend, or hold a hard line? I own shares in a Chinese company and they have risen and fallen sharply based on good news or bad news with respect to a potential trade deal. This trade war has created casualties that many investors could not have foreseen, so the question is whether we get this resolved to our satisfaction, or whether these tensions continue this year. The deteriorating situation in Venezuela also poses a potential threat. We could see oil prices spike much higher if this turns into a hot war. Got any questions for our experts? Send us an email: mailbag@investingdaily.com. John Persinos and Robert Rapier just discussed the risks facing investors this year. It begs the question: how can you protect your portfolio, but still partake in growth? Their colleague Jim Fink has the answer. Jim Fink is the chief investment strategist of Options for Income and he just unveiled powerful tactics that simultaneously defend and grow your wealth. Jim is the lead analyst in a free webinar that explains how to make up to $4,000 each week, by selling what amounts to "stock insurance" to nervous and inexperienced investors. Jim knows how to make money in bull or bear markets, in economic recoveries or recessions. He has a proven track record of 93% winning trades. Those are the kinds of odds that any investors should like. Learn Jim's investment secrets by clicking here.

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