Sweet 16 Update - July 27
Posted: Sat Jul 27, 2019 5:51 pm
The price of WTI crude oil is up more than 30% since the low set in the last ten days of December, but the Sweet 16 (heavily weighted to oil) is down 15% YTD.
First let me add that if I remove the four gassers (AR, GPOR, RRC and SWN) the other twelve companies are down just 4%. However, there is no logical reason for them to be down. They are all expected to report solid results in Q2, they have strong balance sheets and lots of upside. They are trading as if WTI is in the mid $40s and going to stay there.
Investors just don't have any confidence in the the global oil market, despite the strong move up in the oil price since the beginning of the year. Why?
1. FEAR that an extended U.S. vs China Trade War leads the list of worries. < EIA's forecast is that global demand for oil will only go up 1.1 million barrels per day vs their January forecast of 1.5 million barrels per day. This world is on-track to average 101,000,000 barrels PER DAY of consumption of petroleum based liquids (primarily transportation fuels) in 2019. Just remember that demand for oil is RELENTLESS.
2. FEAR that OPEC+Russia will not stick to their production quota agreement. < It is definitely in their best interest to do so.
3. SPECULATION: Will Iran suddenly give in to pressure from Team Trump and agree to give up their nuclear program? < IMO there is zero chance of a resolution to this issue anytime soon.
4. Will there be sudden regime change in Venezuela? < Not expected this year.
5. Will Libya be able to increase exports? < The country is run by a bunch of gangs.
6. Will oil production in the U.S. resume its growth rate? < Getting more and more unlikely as the active rig count continues to fall.
7. What about IMO 2020 regulations that require ships to burn low-sulfur fuel beginning 1-1-2020? Seldom mentioned, but it is expected to take a million barrels of supply off the market.
July 31: Our first speaker at Wednesday's luncheon in Houston will be Muhammed Ghulan, a Senior Associate on the Raymond James Energy Research Team. He will present the firm's forecast that WTI will average $70/bbl in Q4 2019 and then spike to more than $95/bbl within twelve months. Seating is limited, so you MUST REGISTER FOR THIS LUNCHEON IF YOU WISH TO ATTEND.
Range Resources (RRC) reported solid Q2 results on July 25.
> Q2 production exceeded my forecast.
> Q2 Reported Net Income was $115.2 million ($0.46/share)
> They've announced new asset sales that will push cash proceeds from sales to over $1 Billion.
> This year's capex expenditures of $756 million should be totally covered by cash flow from operations, so the asset sale proceeds are going to pay down debt by approximately 17% and reduce annual interest expense by $30 million.
> Even with the asset sales, Range's production is on-track to be up 4.5% year-over-year.
My weekly podcast should be available on our website Saturday evening (July 27). I'm covering the highlights of the Raymond James oil price forecast.
First let me add that if I remove the four gassers (AR, GPOR, RRC and SWN) the other twelve companies are down just 4%. However, there is no logical reason for them to be down. They are all expected to report solid results in Q2, they have strong balance sheets and lots of upside. They are trading as if WTI is in the mid $40s and going to stay there.
Investors just don't have any confidence in the the global oil market, despite the strong move up in the oil price since the beginning of the year. Why?
1. FEAR that an extended U.S. vs China Trade War leads the list of worries. < EIA's forecast is that global demand for oil will only go up 1.1 million barrels per day vs their January forecast of 1.5 million barrels per day. This world is on-track to average 101,000,000 barrels PER DAY of consumption of petroleum based liquids (primarily transportation fuels) in 2019. Just remember that demand for oil is RELENTLESS.
2. FEAR that OPEC+Russia will not stick to their production quota agreement. < It is definitely in their best interest to do so.
3. SPECULATION: Will Iran suddenly give in to pressure from Team Trump and agree to give up their nuclear program? < IMO there is zero chance of a resolution to this issue anytime soon.
4. Will there be sudden regime change in Venezuela? < Not expected this year.
5. Will Libya be able to increase exports? < The country is run by a bunch of gangs.
6. Will oil production in the U.S. resume its growth rate? < Getting more and more unlikely as the active rig count continues to fall.
7. What about IMO 2020 regulations that require ships to burn low-sulfur fuel beginning 1-1-2020? Seldom mentioned, but it is expected to take a million barrels of supply off the market.
July 31: Our first speaker at Wednesday's luncheon in Houston will be Muhammed Ghulan, a Senior Associate on the Raymond James Energy Research Team. He will present the firm's forecast that WTI will average $70/bbl in Q4 2019 and then spike to more than $95/bbl within twelve months. Seating is limited, so you MUST REGISTER FOR THIS LUNCHEON IF YOU WISH TO ATTEND.
Range Resources (RRC) reported solid Q2 results on July 25.
> Q2 production exceeded my forecast.
> Q2 Reported Net Income was $115.2 million ($0.46/share)
> They've announced new asset sales that will push cash proceeds from sales to over $1 Billion.
> This year's capex expenditures of $756 million should be totally covered by cash flow from operations, so the asset sale proceeds are going to pay down debt by approximately 17% and reduce annual interest expense by $30 million.
> Even with the asset sales, Range's production is on-track to be up 4.5% year-over-year.
My weekly podcast should be available on our website Saturday evening (July 27). I'm covering the highlights of the Raymond James oil price forecast.