Energy Prospectus

The February NYMEX contract for WTI is down $0.77/bbl to $51.59/bbl as I am posting this. A lower open today was expected because of the much larger than expected move higher yesterday. There was no concrete fundamental information yesterday to justify the more than $2.00 gain.

As I posted yesterday, I would much rather see day after day of small increases than one large increase in the oil price. Why?...because most of the trades in oil futures is now being done by computers. After a big price increase, hedge funds tighten up their stop loss orders to lock in their gains; a $10/bbl gain in two weeks in not something you want to give up. If selling starts the next morning after the big move up, it feeds on itself and sell orders overwhelm the buyers. Just keep in mind that same funds that sold to lock in their gains are eager to establish their next long position as soon as they feel that the selling is over.

Technical analysis, including some good advice: https://www.investing.com/analysis/catc ... -200374333

Above $50 there is no significant resistance until $55.

After opening lower this morning on profit taking after yesterday's spike (dipping down to $51.37), WTI bounced back trading up to $52.78 and closing $0.18 higher on the day at $52.54. WTI has closed higher each trading day in 2019. My take is that WTI will stair step its way back to the $60-$65 range within six months; maybe sooner if OPEC+ quickly confirms that the cartel members and Russia are making the production cuts that they agreed to in December. Note that my valuations of all of our model portfolio companies are based on lower oil prices than we have today. The entire energy sector was grossly oversold during the 4th quarter. The upstream subsector is way out in front of the pack to start 2019. - Dan
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"The bulls are trying to keep it together and waiting for the next big driver to emerge," said Gene McGillian, director of energy research at Tradition Energy in Stamford, Conn.

Just two weeks ago, oil was in a bear market, with WTI down 40% on Christmas Eve from four-year highs hit in early October. U.S. crude futures have gained more than 23%, re-establishing a bull market, in a remarkable turnaround spurred by Saudi production cuts and optimism over trade talks between U.S. and Chinese delegations.

Wednesday's trading alone brought a 5% gain after Saudi Enery Minister Khalid al-Falih, vowing to rebalance the market, said the kingdom was pumping approximately 800,000 barrels fewer a day from a record high of 10.2 million barrels per day in November. The amount Riyadh would ship overseas in February would be another 100,000 bpd fewer than January's 7.2 million bpd, he added.

Falih's remarks, along with positive news on a huge Saudi bond issue and listing plans for the kingdom's state oil company, helped bulls seized the narrative from a particularly bearish weekly dataset released by the U.S. Energy Information Administration. EIA reported that crude inventories fell by 1.68 million barrels for the week ended Jan 4, about a third less than the 2.4 million-barrel draw forecast by analysts, the EIA said. On the products side, gasoline inventories rose by 8.07 million barrels, more than double the expected build of 3.39 million barrels. Distillate stockpiles, which include diesel and heating oil, increased by 10.61 million barrels, compared to forecasts for a gain of 1.89 million.
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Remember to take the weekly EIA numbers with a big grain of salt as the government shutdown makes their data even more of a WAG. - Dan