This is one tough market

[dan_s]

"The U.S. Energy Information Administration's said this week that it expects the global thirst for oil to outpace the industry's ability to pump it by 1.81 million barrels per day between July and September. That's the largest shortfall since the final three months of 2007."

FEAR and GREED drive the stock market. Right now FEAR is in control. Despite outstanding fundamentals, the energy sector has pulled back to about where it was at the beginning of the year.

Are the energy stocks oversold? Yes

Since oil "corrected" on May 5 (dropping from $114 to $98) back to the trend line, it has been on an upward trend. First quarter results were rock solid and 2nd quarter results are going to be even better. Even natual gas is higher, giving a lot of our favorites a boost that no one saw coming.

Nine of the Sweet 16 were down today despite the announcement that OPEC is not going to raise production quotas and oil up on the day, closing above $101/bbl. I think there is better than 50% chance we will see oil up to $120/bbl by year-end. Morgan Stanley issued a detailed report yesterday with that prediction.

The only explaination for the dip in the energy stocks is that investors are pulling lots of money out of mutual funds, electing to sit on the sidelines. Fund managers have to "throw the babies out with the bath water". Part of this is the lack of confidence in our government. Congressman Weiner's sex problems on the front page certainly doesn't help. I for one am sick and tied of the idiots and sex perverts that we have running this country. Washington spends time on this crap and not on the important issues of the day, like figuring out how to live within a balanced budget.

So what is an investor to do? Only you can decide how to deal with this market. I will do my best to stay on top of the numbers and give EPG members the best forecasts I can. I believe that the fundamentals will win out in the end. Sticking with companies building real value (proven reserves) has paid off in the past and I think it will in the future. However, we may have to endure a few more months of this before the markets improve.

Dan

NEW YORK (AP) -- A contentious meeting of oil ministers ended Wednesday with a clear message: Don't count on OPEC to do much about oil prices.

The 12-nation group decided not to boost production, which likely would have resulted in lower prices. That sent oil back above $100 a barrel. And more importantly, it sets the stage for higher prices later this year.

Rising energy prices since the beginning of the year have impacted the U.S. economic recovery. The Federal Reserve on Wednesday reported that the economy slowed in several parts of the country this spring and blamed high gas prices for sluggish consumer spending.

At Wednesday's OPEC meeting in Vienna, Saudi Arabia lobbied for an increase in oil output, which likely would have likely lowered oil prices. Countries like Iran resisted, arguing that oil supplies are adequate to meet demand and current prices are appropriate. {Iran hates the U.S. and could care less what high poil prices do to our economy.]

"We are unable to reach consensus," OPEC Secretary General Abdullah Al-Badri told reporters after the meeting in Vienna ended. Saudi oil minister Ali Naimi called the meeting "one of the worst ever."

Traders were surprised and oil prices climbed. Benchmark West Texas Intermediate for July delivery gained $1.65 to settle at $100.74 per barrel on the New York Mercantile Exchange. In London, Brent crude added $1.07 to settle at $117.85 per barrel on the ICE Futures exchange.

Many analysts were almost certain that OPEC would increase production. OPEC not only supplies 34 percent of the world's oil -- about 29.7 million barrels per day -- it has the unique ability to crank up production as needed. Other oil-producing countries, such as Canada, Russia and Mexico, don't have that flexibility.

Global oil consumption is expected to increase by 2 percent this year to an average of 88.4 million barrels per day.

While the Saudis and the Iranians are frequently at loggerheads over pricing at OPEC meetings, member countries usually fall in behind the lead of Saudi Arabia, which produces most of the group's oil. This time the Saudi-Iranian rivalry resulted in a deadlock.

The International Energy Agency in Paris had urged oil producers to put more crude on the market. "Ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply," the agency said.

The oil market has been worried for months that unrest in Libya and Yemen could destabilize larger oil-producing nations in the region. The two countries normally produce less than 4 percent of the world's oil needs. Saudi Arabia and others have boosted output to make up for much of the shortfall, but concerns remain that unrest could intensify across the region and disrupt supplies.

Oil prices jumped 25 percent from January through April as global demand grew to the highest level on record while violent uprisings in North Africa and the Middle East threatened oil fields and cut off Libya's oil exports.

The price of gasoline soared as well. The national average in the United States grew 28 percent to record levels from January through early May, nearly topping $4 per gallon. Motorists reacted by driving less. Consumer confidence suffered as more money went to the pump. Though gasoline prices have dropped 21 cents in the past month, they're still above $3.70 per gallon and analysts say they'll continue to squeeze budgets this year.

The U.S. Energy Information Administration's said this week that it expects the global thirst for oil to outpace the industry's ability to pump it by 1.81 million barrels per day between July and September. That's the largest shortfall since the final three months of 2007.

Capital Economics said OPEC would need to boost production by 1.5 million barrels per day to help keep prices in check.

Saudi Arabia has indicated a willingness to supply whatever the market needs. Analyst Jim Ritterbusch thinks the Saudis will quietly increase exports regardless of their quota, since keeping prices under control is in their best interest.

"They don't want countries to turn to alternative fuels," he said. "They don't want people on buses."

But J.P. Morgan analyst Lawrence Eagles questioned if Saudi Arabia really could meet increased demand and believes the lack of an agreement "seems to highlight the limited spare capacity among many (OPEC) members." That's one reason he expects Brent crude will rise to an average of $130 per barrel this year.

Rep. Ed Markey of Massachusetts said the U.S. must be prepared to use its Strategic Petroleum Reserve to "head off an economic collapse from continued high gas prices." Most experts agree that tapping the reserve wouldn't make much difference in prices, since the U.S. already has one of the largest petroleum surpluses on record, not including the strategic reserve.

The EIA's weekly report on petroleum supplies showed a drop of 4.8 million barrels of oil, but supplies are still more than 2 percent above year-ago levels. Much of the decline happened in the Midwest, where problems with a pipeline system temporarily halted deliveries from Canada. Gasoline supplies grew by 2.2 million barrels, while the four-week average demand number inched up for the first time in 11 weeks.

Gasoline pump prices dropped another 1.3 cents on Wednesday to a national average of $3.748 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 21.2 cents cheaper than it was a month ago, but remains $1.03 higher than the same time last year.

In other Nymex trading for July contacts, heating oil added 1.67 cents to settle at $3.0937 per gallon and gasoline futures fell by 1.32 cents to settle at $2.9787 per gallon. Natural gas rose 1.6 cents to settle at $4.847 per 1,000 cubic feet.

[dan_s]

Nice short Bull vs. Bear discussion

http://www.bloomberg.com/video/70662384/

I tend to believe (hope) that Joe is correct. I believe the energy sector is grossly oversold and due for a nice rally during the second half of this year. I call it the "coiled spring". The larger the gap between my Fair Value estimates and current share prices the higher percentage chance for a rally. Commodity based companies can only trade below break-up value for so long before we see significant M&A activity.