Energy Prospectus

Do you believe West Texas Intermediate (WTI) is going to stay over $60/bbl? If so, then today's pullback is the buying opportunity of the decade.

I have updated the main Sweet 16 spreadsheet and it will be posted to the EPG website this evening. The Sweet 16 closed 56% below my valuation and 37.5% below the First Call price targets, which are still based on rather low commodity prices.

Take a hard look at Tab 2 where my valuations are compared to First Call's price targets. FC price targets for four companies (CPE, CXO, FANG and RSPP) are now higher than my valuations.

The Sweet 16 is heavily weighted to oil. My valuations are based on $50/bbl WTI and $3.00/mcf HH gas after Q1 2018.

Thanks to today's overall market selloff, the Sweet 16 is down 8.2% YTD despite the fact that oil prices are MUCH HIGHER than they were just a few months ago. WTI sold off a bit today, but closed over $63/bbl.

BTW inflation and low unemployment, two of the reason given by Wall Street for today's selloff, are bullish for oil demand.

Comments below are from Phil Flynn at 11:16AM ET on 2/6/2018:

Market mayhem, or maybe just a correction, is shattering nerves and causing crazy volatility. We saw the biggest jump in the VIX volatility index or fear index in history. Of course, when your driven by fear and algos it’s hard to find stability. Oil is being driven down by fear and not reality as demand so far is exceptional. Unless fear and mayhem take the focus of current reality, oil will come back big as long as we see stability in stocks.

The oil market, like the stock market is worried that too much of a good thing can be a bad thing. Strong economic data has raised the fear of inflation and the fears of rising rates and less cooperate profits ahead.

OPEC is worried that they may be a victim of their own success. The cartel’s historic compliance has led to a very tight global oil market that may exasperate economic worries that have suddenly appeared in global markets. Maybe the market is signaling rough times ahead or maybe it’s just signaling a market correction. We believe that this is a much-needed correction and is healthy for longer term economic growth. The economic backdrop to this sell-off is rising wages, strong manufacturing and non manufacturing data. Strong growth.

Oil traders are expecting to see an increase in crude supply even as we see a big draw in Cushing, Oklahoma yet again. Strong global distillate demand will keep the ultra-low sulfur diesel well supported. Use market weakness to establish more long-term call positions as the global demand versus supply curve should continue to come in.
-------------------------
MY TAKE: Strong global economic growth, low unemployment and inflation are all bullish for energy prices. FEAR and GREED drive the markets. All we need now is less FEAR and the energy sector should draw a lot more "love" from the Wall Street gang. PXD will be publishing Q4 financial and operational information today after the markets close. The Wall Street Gang will be reading it carefully and they will all be on the PXD conference call. - Dan