Energy sector is doomed.

At least that is what the pundits and the story tellers would have us believe.  But I don't think these people have even the smallest clue as to what makes stocks move.  They never predicted that energy would fall this far this fast and now that it has plummeted they want to predict the same behavior going forward as far as their eyes can see.

If this were pet rocks we were talking about then I would be in full agreement but I happen to know that the only reason this planet has a 7+billion person carrying capacity is that energy is making up the difference.  It makes the fertilizers and fuels the tractors and other equipment needed to grow our food.  It creates the plastics and chemicals we count on to survive. If our oil supply were to drop just 40% for a period of 3 years I'd wager than 20+% of the Earth's population would have to die to make up for it.  Our species is powered by the sun.  The sun is the only real energy source we have besides dangerous nuclear and oil represents hundreds of millions of years worth of stored sunlight.  Without it our species would have to its presence on this planet way, way back.

Imagine how much land it would take for everyone to live the frontier lifestyle with minimal dependence on energy.  Look at how much natural resource the Kilcher family of Alaska Last Frontier fame consume.  It takes hundreds and hundreds of acres to provide a subsistence living for these folks and that's with them supplementing their needs with fossil fuels.  Imagine if there were little or no available fossil energy and many people tried to live subsistence.  All the trees in Alaska wouldn't last 5 years if that happened.  Without oil and gas, the Earth's population would literally starve back to the point where it could be supported by the remaining resources.

Bottom line: energy is not a fad.  The energy sector is only down because so much free money was pumped into it creating massive oversupply.  Data from Baker Hughes shows the current rig count to be down to 536 from a high of just over 1600.  I added the red portion of the chart manually after quickly scanning the missing last 6 months of data in this chart.  The key point is that energy consumption is increasing at a linear rate over time and now we have reverted to the mean.  Is is possible to undershoot badly?  Sure, it's possible.  But the correction here is far, far closer to a finish than to a start.




The starting rig count seems to have been around 105 back in 2002.  Assuming that this is a big 2nd wave retracement, and assuming that the peak of 1 was 1425 and then we had a 3-3-5 expanded flat retracement, 536 represents something greater than the 61.8 fib.  Clearly it was a monster run up and we have now had a monster pullback.  The energy sector isn't dead.  It's just pulling back per the EW principle.