Maybe, Just Maybe, Oil Stocks Aren’t Headed for the Scrap Heap Soon

The need for oil and gas will be around for a while, and their suffering stocks are far from lost causes, Wells Fargo argues.


Oil prices had been on the mend, but that rebound ran into trouble last month—and Friday, crude dropped 4.4%. So the market, amid signs that the recovery may be faltering, is again taking a dim view of what once was called “black gold.”

Well, hold on, says Wells Fargo Securities. “It is hard to overstate how cruel 2020 has been to oil-and-gas equities,” wrote Roger Read, senior analyst at the firm. Still, he went on, “It may be a while before oil enjoys a boom, but its demise has been greatly exaggerated.”

For sure, oil producers are under siege. Sinking petroleum prices, first from over-production and then from this recession, have pushed many of the big oil companies into the red. University endowments are hustling to divest themselves of energy stocks. Exxon Mobil even got kicked off the Dow Jones Industrial Average—not because of politics but due to its shrinking market value.

For investors, this is a signal to shun energy stocks. But in Read’s view, that is way premature.

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The Wells analysis underscores the difficulty of breaking free from legacy energy’s hold. While alternative energy sources, namely solar and wind, have made great strides, they remain merely a small part of the nation’s and the world’s energy production.

By 2050, according to the Energy Information Administration (EIA), fossil fuels will still hold a decent chunk of the energy space. True, projections like this are hardly iron-clad, and scientific and engineering advances may arrive that will speed the demise of fossil fuels.

In three decades, by the EIA’s estimation, renewable energy will constitute 28% of global energy consumption, almost double the amount it did in 2018 (15%), making it the leading source, by a tiny margin. Right behind it: petroleum at 27% (down from 32% now), then natural gas, static over the 30-year stretch, at 22%.

How come? As Wells’ Read, with the help of colleague Lauren Hendrix, pointed out, the alt energy buildout from here won’t be easy logistically. They wrote that “it is worth considering the amount of material and energy that will be required to build and sustain this new green world.”

For one thing, they reason, oil and gas best provide the heat needed for the amount of manufacturing required for green infrastructure. Not to mention diesel’s superior ability to power the trucking industry’s internal combustion engines, at last for now: “Good luck hauling all of those windmills blades and mining, processing, and creating all of the metals and carbon fibers without the oil-and-gas sector.”

And the buildout will be very expensive, they warned. “Expect more negative headlines about those costs (visible and hidden) in coming years,” they said.

Democratic presidential nominee Joe Biden talks of creating a $2 trillion federal commitment to renewables and clean energy projects. President Donald Trump is on the opposite side of that. Regardless of who is right, the Wells analysts make a persuasive case that none of this will be easy.

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JPMorgan Chase to Pay Nearly $1 Billion to Settle Trade Manipulation Charges

Bank avoids criminal charges by agreeing to record $920.2 million CFTC fine and a $35 million SEC fine.


JPMorgan Chase has agreed to pay nearly $1 billion to settle charges of manipulative trading of US Treasury securities brought by the US Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The fines consist of a record CFTC fine of $920.2 million and a $35 million SEC fine.

The CFTC charged JPMorgan Chase and its subsidiary J.P. Morgan Securities LLC for “manipulative and deceptive conduct” as well as for “spoofing” over the course of at least eight years. Spoofing is an illegal form of market manipulation intended to create the belief there is a large demand to buy or sell a certain asset. This is done by placing large orders to buy or sell a financial asset and then canceling the order just before the trade is executed.

The CFTC said JPMorgan had done this hundreds of thousands of times with precious metals and US Treasury futures contracts on the Commodity Exchange Inc., the New York Mercantile Exchange, and the Chicago Board of Trade.

The $920.2 million fine levied by the CFTC is the largest amount of monetary relief ever imposed by the CFTC, which was comprised of more than $311.7 million in restitution, over $172 million in disgorgement , and a civil monetary penalty of over $436.4 million—all CFTC records in any spoofing case.

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“Spoofing is illegal—pure and simple,” CFTC Chairman Heath Tarbert said in a statement. “This record-setting enforcement action demonstrates the CFTC’s commitment to being tough on those who intentionally break our rules, no matter who they are. Attempts to manipulate our markets won’t be tolerated.”

According to the CFTC’s order, JPMorgan placed hundreds of thousands of orders to buy or sell certain gold, silver, platinum, palladium, Treasury note, and Treasury bond futures contracts with the intent to cancel those orders before executing them.

The order also finds that J.P. Morgan Securities failed to identify, investigate, and stop the misconduct.

“Despite numerous red flags, including internal surveillance alerts, inquiries from [market operator] CME and the commission, and internal allegations of misconduct from a JPM trader,” said the order, “JPMS still failed to provide supervision to its employees sufficient to enable JPMS to identify, adequately investigate, and put a stop to JPM’s Precious Metals Desk and Treasuries Desk’s misconduct.”

Meanwhile, the SEC, which also charged JPMorgan Chase and J.P. Morgan Securities for fraudulently engaging in manipulative trading of US Treasury securities, fined the companies $10 million in disgorgement fines and a civil penalty of $25 million to settle the action.

According to the SEC’s order, between April 2015 and January 2016, traders on J.P. Morgan Securities’ Treasuries trading desk used manipulative strategies involving Treasury cash securities. The SEC said they placed genuine orders to buy or sell a particular Treasury security, while nearly simultaneously placing “non-bona fide” orders, which the traders had no intention of executing, for the same series of Treasury security on the opposite side of the market.

The order finds that the traders intended to induce other market participants to trade against the bona fide orders at prices that were more favorable to J.P. Morgan Securities than it otherwise would have been able to obtain. After the traders secured beneficially priced executions for the bona fide orders, they promptly canceled the non-bona fide orders.

“J.P. Morgan Securities undermined the integrity of our markets with this scheme,” Stephanie Avakian, director of the SEC’s Division of Enforcement, said in a statement.

J.P. Morgan Securities admitted to the SEC’s findings and that its conduct violated the Securities Act of 1933.

By agreeing to pay the massive fines to the regulators JPMorgan was able to secure a deal with the Department of Justice to avoid criminal wire fraud charges related to the two schemes.

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