Crude oil took a hard hit during the last two years. A barrel cost more than $107 in June, 2014. By February, 2016, it was trading slightly above $26. The crash was so swift and severe, it seems hard to believe that the price of oil will ever rise above $100 a barrel again. Besides, companies like Tesla Motors and SolarCity have set their goal to completely eliminate mankind’s dependency on the commodity. The advance of renewable energy could spell the end of the petrol era as we know it. However, it will be a slow process. It is not going to happen overnight, so the question is could petrol refining companies adapt to this new low oil price environment? Warren Buffett thinks they can.
CVR Energy Inc. is a petrol refining company, founded in 1906. It went through the “Panic of 1907”, it survived the Great Depression, the Oil crisis in the 1970s, the crash in 2000 and the Great Recession of 2007-2009. If history is any guide, CVR Energy is a company, which will not go away just like that. But the company’s stock fell from above $72 to as low as $13 a share between May 2013 and August 2016. As it turns out, oil’s crash is enough to make investors eager to get rid of their CVR shares. Well, the Elliott Wave Principle says this is the exact opposite of the right decision right now. The chart below explains why.
The weekly chart of CVR Energy shows the stock’s development since October 2008, when prices refused to decline below $2.15 a share. This level was the starting point of a five-wave impulse with an extended fifth wave all the way up to $72.32 less than five years later. According to the Wave Principle, impulses show the direction of the larger trend, but every impulse is followed by a three-wave correction, before the trend resumes. In other words, CVR Energy’s crash since 2013 is nothing more than a natural three-leg retracement in the form of an (a)-(b)-(c) zig-zag with a running flat in wave (b).
If this is the correct count, it looks like CVR Energy stock is offering a “once in a lifetime” buying opportunity. Buffett says that oil refining can be profitable regardless of the oil price. The 5-3 wave cycle, visible on the weekly chart of CVR’s stock, supports the bullish idea. In our opinion, instead of running away, investors should be grabbing CVR shares right now, especially with targets above $73 in the long term.
