More pain could be in store for energy stocks, portfolio manager says

Energy stocks rebounded with the rest of the market on Friday, rallying into the close on President Donald Trump’s comments that the Department of Energy would buy crude for the country’s strategic reserves.

But one portfolio manager warned of more pain to come in the oil market.

The energy crush has largely been due to the collapse in crude prices, with energy ETFs across the board like the SPDR S&P Oil & Gas ETF (XOP) following the commodity lower.

Tocqueville portfolio manager John Petrides believes several things need to happen to boost the energy market. First, the Saudis and Russians need to get back on good terms to smooth out the geopolitical situation surrounding OPEC’s failure to agree on production cuts, he said.

Second, Petrides said he’d like to see the Trump administration throw its support behind the oil industry, as it did Friday as part of its broader response to the rapid spread of the coronavirus, which included declaring a state of national emergency.

Finally, the demand-supply situation in the oil market needs to shake out, he told CNBC’s “Trading Nation” on Friday.

“If we do get a rebound in the global economy, and [if] this potential global recession is not nearly as bad as feared, maybe you get some hope on the demand side,” Petrides said.

Unfortunately, he doesn’t see any of those scenarios playing out in the near term. 

But, he said, if investors were looking for plays in the oil space, then Kinder Morgan would be a solid holding. He noted that the company not only has a strong balance sheet, but it also focuses primarily on the midstream pipeline sector and mostly moves natural gas.

Because of crude’s collapse, the energy sector is now down 47% this year even after Friday’s rally into the close.

Disclosure: Petrides and certain Tocqueville clients own shares of Kinder Morgan.

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