Sweet 16 Update - July 22

[dan_s]

The Sweet 16 was down 0.85% for the week ending 7/22 and it is down 26.79% YTD. "FEAR" is keeping a lot of money out of the energy sector even though supply/demand fundamentals are definitely heading in the right direction. OECD crude oil storage levels are heading down. U.S. natural gas storage level is rapidly moving back to the 5-year average and we need a heck of a lot more gas in storage than we did five years ago; over 10 BCF per day more.

The S&P 500 Index is up 10.44% YTD, lead by the Tech Sector. Plus, low fuel prices are darn good for the general economy.

The Sweet 16 closed Friday 46.7% below the First Call Price Targets and 91.04% below my valuation.

All of the Sweet 16 individual company forecasts are up-to-date. I am expecting all of them to report positive "Adjusted Earnings" for the 2nd quarter. "Reported Earnings" for those with lots of production hedged will be much higher.

Next week the NYMEX front month contracts for August will expire and the front month will be September. Bullish storage reports could cause a nice short covering rally.

Raymond James published a detailed "Industry Brief" on the global oil market last week. I had a chance to read it on my flight back from California on Friday. Basically, it points out that the fundamentals for oil (supply/demand) were quite bullish in the 2nd quarter, but there is so much FEAR in the market and miss-conceptions that the "speculators" are able to keep oil prices below where they should be. Per RJ: "If oil prices stay anywhere near the current futures prices, our U.S. oil supply growth estimates would fall meaningfully."

RJ lists three catalysts that should move oil prices higher. IMO all three are quite possible in the next few weeks.
1. U.S. and global oil inventories continue to post solid declines driving oil inventories below levels that the physical market participants are comfortable maintaining.
2. The U.S. active rig count rolls over (declines) due to the persistently low oil prices seen over the last four months.
3. Oil prices break upward through the technical resistance lines driving the "paper market" traders to cover shorts. < This can happen rather suddenly.

Keep in mind that trading commodities based on chart "technicals" works until it doesn't.
If you'd like to see the RJ report, send an email to dmsteffens@comcast.net

Sweet 16 Q2 results will start pouring out August 1st. I think we will hear a lot of them talking about slowing down their drilling programs if oil stays under $50/Bbl. I expect this to be a hot topic during all of the Q&A during the conference calls.

Natural Gas:
> Another bullish storage report on Thursday as the delta to the 5-year average declined by another 26 BCF.
> IMO the chance of draws from storage the last week of July and first half of August are better than 50% now.
> My forecast that storage will move below the 5-year average around the end of September is gaining strength.
> I predict the September NYMEX contract for natural gas will move firming over $3.00/MMBtu before it expires near the end of August.
> After Labor Day, the Wall Street Gang will focus more attention on natural gas.

We have a luncheon at The Hess Club on Wednesday, July 26. I will open the meeting with an update on my natural gas price outlook.

[dan_s]

An updated Sweet 16 spreadsheet will be posted to the EPG website late today.