Energy Prospectus

This morning (Jan 7), Raymond James sent out a detailed report on why they believe 2019 will a very good year for energy sector equities.

If you'd like to see the full report, send me an email: dmsteffens@comcast.net

Conclusion: "Given our 2019 outlook for back-end loaded recovery in oil prices, we are looking for a strong year in general for energy stocks, with
stabilization in the first half, and then outsized gains in the second half. While sentiment is very hard to predict, we anticipate that high-beta, oil-levered
stocks stand to outperform defensive names (on the whole) over the next 12 months. And, yet again, there is strong potential for actively
managed strategies to outperform the benchmarks. Please see the Appendix for our discussions of individual energy subsectors."

MY TAKES:
> I believe upstream company stocks were so oversold in Q4 2018 that they will rebound quicker than RJ is predicting if WTI just stabilizes in the low $50s.
> I do think WTI will move a lot higher if (a) OPEC+ cuts production in accordance with their agreement and (b) we don't have a global recession.
> IMO 2020 is a BIG DEAL that will take oil prices a lot higher in Q4.
> Included in RJ's list of "Strong Buys": CLR, CRZO, CXO, PE, PXD, OAS, SRCI and VNOM. CLR is unhedged, so they have the most exposure to rising oil prices.
> I agree with RJ's natural gas price forecast, but I do not agree that our "gassers" will Under-Preform the market. They are all extremely over-sold and winter ain't over yet. All of our gassers (AR, GPOR, RRC, SWN, GDP and CRK) are going to report very good Q4 and Q1 results. I also believe that demand for U.S. natural gas will surprise to the upside, just as it did in 2018. My valuations of these stocks are based on gas prices slightly lower than RJ's gas price forecast.

Reuters: Crude oil climbs as Saudis said to plan to cut exports by 800,000 bbl/day.
> Crude oil extends its recent rally from 18-month lows, bumping to highs of the day after OPEC officials say Saudi Arabia plans to cut crude exports to 7.1M bbl/day by the end of January, as it seeks a return to $80/bbl oil to cover a massive government spending boost: WTI +3.4% to $49.61/bbl, Brent +2.8% to $58.66/bbl.
> The reduction of as much as 800K bbl/day from November levels would effectively go beyond commitments the Saudis made last month to OPEC, but cartel officials say the effort is unlikely to be enough to lift prices to a level the Saudis desire, WSJ reports.

Bloomberg:

The U.S. and China kicked off talks in Beijing Monday in the first face-to-face meeting since Trump and Chinese President Xi Jinping in December agreed to a 90-day truce in their trade war. While stocks on Wall Street were quiet awaiting the outcome of the talks, oil bulls cheered news that Chinese Vice Premier Liu He unexpectedly attended the opening of the meeting.

It "is a sign that the Chinese are very serious about securing a trade deal," Phil Flynn, an oil bull himself and analyst at The Price Futures Group in Chicago, wrote in his morning commentary.

Optimism has run higher in equity markets to oil since Friday after Fed Chairman Jerome Powell indicated he will be patient with future rate hikes, as Trump has been hoping the central bank would. Powell made his remarks after a strong U.S. jobs report for December.

Monday's trading in oil got a further boost from a drop in WTI inventory estimates at the Cushing storage hub, which fell by 565,225 barrels between Jan. 1 and Jan. 4, according to private data seen by traders.

Despite that, some like Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, cautioned that it was "still too early to declare that the downtrend has reversed” in oil, although there were signs suggesting “a change in direction.”

Analysts at Goldman Sachs (NYSE:GS) weighed in, forecasting a 3-month and 6-month price of $62.50 and $67.50 for Brent versus their previous call of $70. For WTI, their price view is $55.50 versus a previous $64.50. The Goldman analysts cite new pipelines that will release more cheap U.S. shale oil from the Permian Basin and slowing Chinese demand, among others.

The first contraction in 19 months in China’s Purchasing Managers Index (PMI) in December has strengthened some economists’ belief that the world’s second-largest economy is headed for a slowdown. And despite the feel-good vibe over the US-Sino talks, some say it’s premature to conclude that it’s a done deal. Any shift in China’s stance toward the trade talks would be volatile for equities and, consequently, crude prices.

"It wouldn’t surprise me in the least if we saw WTI slowly climb back to $70 per barrel throughout 2019." - Keith Kohl, Editor of the Energy Investor in a note to subscribers that I received at 1:18 CT on January 7, 2019.

Keep in mind that all of my valuations assume WTI ramping to $60/bbl by Q4 and staying there for all of 2020. OPEC+ cuts and the IMO-2020 regulations will push it much higher than that; probably within six months.