Oil Price - Nov 26

[dan_s]

WTI is up in pre-market trading at $58.30/bbl.

Market Watch after the close on Monday: Oil gains, holds near 2-month high as looming OPEC meeting expected to yield deeper cuts
Published: Nov 25, 2019 3:01 p.m. ET

Oil prices recovered late Monday after a mostly down day, having gained in three of the past four sessions.

Prices remained near the two-month closing highs scored last Thursday as “the trifecta of positivity:
> U.S.-Sino trade talk optimism,
> OPEC+ compliance and
> a sturdy U.S. macro data scrim, should continue to resonate” with oil bulls, said Stephen Innes, chief Asia market strategist with AXI Trader.

West Texas Intermediate crude futures for January delivery CLF20, +0.60% closed up 24 cents, or 0.4%, to $58.01 a barrel on the New York Mercantile Exchange. January Brent crude BRNF20, +0.49%, the global benchmark, gained 26 cents, or 0.4%, at $63.65 a barrel on ICE Futures Europe.

Contributing to the positive tone on the trade front, the Chinese government on Sunday released a document calling for more protection of intellectual property rights. Oil futures hit a two-month high on Thursday before choppy trading action took over at week’s end when China’s President Xi Jinping said Beijing wants to work with the U.S. for a trade deal, but was not afraid to “fight back” to protect its own interests, according to the Associated Press.

“Traders will be looking for any positive signs that the much-discussed face to face between the U.S. and China will take place before Dec. 15 when the U.S. is scheduled to impose more tariffs,” said Innes.

The front-month U.S. benchmark WTI contract ended 0.1% lower last week, while Brent, the global benchmark, logged a weekly gain of roughly 0.1%.

“Given WTI moved to multiweek highs on Thursday, the bulls are broadly in control,” said Richard Perry, analyst with Hantec, in a note. Perry pegs near-term resistance at $58.65 and then $59.40 for WTI. He’s advising clients that as a “run of higher lows and higher highs continues, we see buying into weakness as the strategy.”

Oil prices have climbed of late as global supplies have fallen so far this year thanks to efforts by the Organization of the Petroleum Exporting Countries and its allies, but growth in U.S. shale output and a slowdown in crude demand threaten to ruin that progress. < The Wall Street Gang still doesn't get it that at the current active drilling rig count there is NO WAY that U.S. shale oil production will increase in 2020. The "Gang" still believes that there are a lot of DUC wells that will be completed as soon as WTI pushes over $60/bbl.

Those are among the big issues that the group will deal with when it holds meetings to discuss the oil market on Dec. 5-6 in Vienna. As officials ready to meet, global benchmark Brent trades around 19% higher year to date, after posting a yearly loss of almost 20% in 2018, according to Dow Jones Market Data.

A combination of improved OPEC compliance, expectations for an extension of cuts from the group beyond March 2020 and slowing U.S. production growth have all added up to a bullish picture for crude oil. In support of that last factor, Baker Hughes BKR, +0.54% on Friday reported a fifth consecutive weekly decline in the U.S. oil-rig count. The number of active U.S. rigs drilling for oil fell by 3 to 671. < We need at least 750 rigs drilling for oil to hold production flat.

“Expectations are building for action to be taken by OPEC+,” ING strategists said in a note. The cartel will need to deepen cuts and extend them through June 2020, the strategist group said, as “failing to do so would mean the risk of weaker prices, given the scale of the surplus forecast over the first half of 2020.”

But, they added, notable price rises this week “could send the wrong message to OPEC+ members, possibly signaling that deeper cuts are not needed.”

In other energy trading, December gasoline RBZ19, +0.82% recovered to gain less than 0.1% at $1.6748 a gallon, settling 2.4% higher for last week, while December heating oil HOZ19, +0.70% rose 0.7% to $1.9443 a gallon; it fell 1% last week.

December natural-gas futures NGZ19, -2.53% fell 5% to $2.5310 per million British thermal units, after they fell around 0.9% last week.

The gas market was in retreat amid a forecast for milder weather for the period post-Thanksgiving.

[mkarpoff]

"Wall St doesn't get it." By Wall St, I assume you mean energy analysts. If they don't get it, why do you quote them or First Call at all? It seems like that is sort of having your cake and eating it too. If these people get paid to do essentially what you are doing, for big bucks I assume, why aren't their brokers recommending share purchases. None of this makes sense to me.

[dan_s]

Most of the energy sector analysts do get it. Even using much lower oil & gas prices than the current strip, they are coming up with stock valuations much higher than the current share prices.

When I use the term "Wall Street Gang", I'm referring to the fund managers. They control the money and "The Money" determines stock prices. Wall Street rotates money from sector to sector based on the gangs belief in which sectors are over or under-valued. There is a herd mentality, so if the leaders of the herd say it is time to rotate money back to energy they will. This cycle has created a lot of fatigue for oil & gas investors, so the sector is extremely oversold.

Goehring and Rozencwajg Market Commentary
Oil: A Market Divorced From Reality

In the thirty years we have been investing in global natural resource markets, we cannot remember seeing greater value than we do today in the global oil markets. With both crude and oil-related securities, the price action appears to have completely divorced itself from underlying fundamentals.

By any measure, oil and oil-related securities are radically undervalued. Over the last 120 years, we estimate it took 17 barrels of oil on average to buy one unit of the S&P 500. Today it requires over 53 barrels. The only time it has taken more was during the parabolic dotcom blow off–incidentally an excellent time to become an oil investor. At the same time, energy-related equities now make up a mere 4% of the S&P 500 by weight. Not only does this represent the lowest level in at least 20 years (when our records begin), it is 75% below the peak levels reached in 2008 at which point energy stocks made up 16% of the S&P 500.

In particular, the bear market in oil exploration and production companies has created value that can hardly be believed. We analyzed the universe of all US-listed E&P companies with market capitalizations over $100mm and proved reserves that are at least 50% oil. We then compared the current stock price to the net-debt adjusted SEC PV-10 measure from their 2018 10Ks. As you may recall, a company’s PV-10 measures the discounted cash flow of all proved reserves at the prevailing oil and gas prices. Under normal market conditions, E&P stocks trade at a premium to their SEC PV-10, reflecting the expected value of any future reserves not yet “booked” in the reserve statement. However, due to the overwhelming bearishness among energy investors, the average company now trades at a 12% discount to its net-debt adjusted SEC PV-10 per share value.