Tax loss season is upon us and this should be the last painful decline in the energy and energy services bear market that has been in place since 2014 when WTI crude oil peaked at $107.68/b and the TSX Energy Index topped out at 339.96.
Tax loss selling could be more pronounced for anumber of reasons:
1) Many stocks that are natural gas or service sector focused are at or near yearly lows. These will likely be the focus of significant tax loss selling.
2) 3rd quarter results are coming out and may show lower cash flow per share than forecast. This is due to uncontracted natural gas being paid very little. Current prices for AECO is below $1.00/mcf.
3) Demand for crude in the US is softening as we head into the shoulder season but the data has been masked or ignored due to the repetitive hurricanes this year. As weather free data comes available this may change. US production should also show a significant rise as well are brought on line for year end lifting to above the 2015 high and the 1970s high of 9.6 M/b per day.
4) Technically crude is overbought and now that we are above the $48 mark the yearly low from June of $42.05 may come into play later this month. We expected this to happen earlier but Mother Nature intervened with an unprecedented four Gulf of Mexico hurricanes this year.
5) OPEC's propoganda campaign is not working, cheating on quotas suggest they are well over 2017 targets. Even the Saudis are thought to be cheating. The Kurds loss of the Kirkuk oil fields has been seen as bullish for crude but ignores the fact that the Iraqi government now controls a pipeline capable of adding another 1M/b per day of production, and that Iraq can almost immediately feed 700K/b per day into their already record high production.