Energy Prospectus

Today I finished the profile on Continental Resources (CLR) and I will finish Parsley Energy (PE) profile on Saturday morning. What's interesting to me is that the First Call price targets for both companies have not budged a penny for these two since the first week of May when they both announced fairly good Q1 results. In fact, all of the Sweet 16 (since I dropped OAS) announced fairly good Q1 results.

The WTI oil price has increased more than $10/bbl during the last three weeks and CLR & PE companies are heavily weighted to oil. In fact, CLR has zero oil hedged so they are VERY HEAVILY WEIGHTED TO OIL.

In my opinion, this is just another example of the FEAR that we are living with today. The Wall Street Gang is afraid to upgrade any oil company these days. There has been some really GREAT NEWS about COVID-19 cases falling and more areas of the world ending shutdowns, but people go to the grocery store and see all of those designer masks, so they believe that there must be lots of people dropping dead somewhere. Georgia is wide open and Texas sure seems almost back to normal, except for the masks everywhere. I think there is still plenty of room in the cemetery.

The key statistic in EIA's weekly Petroleum report is the refinery utilization rate. At this time of year it should be over 90% and ramp to over 95% in June. It has started to move up, it is now just over 70%. Refineries are the real consumers of crude oil and they are watching demand for their products carefully.

Oil prices climbed nearly 4% in the session to book its best month on record with an 87% gain in May. An uptick in demand as well as record supply cuts have pushed prices higher. WTI prices are still 45% below its recent January high of $65.65 per barrel. On Thursday, data released by the US Energy Information Administration showed that for the week ending May 22 gasoline demand rose to 7.3 million barrels per day from the prior week. Gasoline Days of Supply decline from a record high of 48.7 days for the week ending April 24 to 36.3 days for the week ending May 22. The normal range for gasoline Days of Supply is ~25 during May and Memorial Day is considered the beginning of the peak demand period June-Sept for gasoline.

The world has been changed so much by FEAR that it is hard to remember that WTI actually traded over $65/bbl less than 5 months ago. "The Good Old Days".

A recent study reported by Reuters this week shows that death rates from all causes was actually slightly LOWER for all people under 45 in the UK for the five months ending April 30 and during the same five months for the same five months over the last five years. It is only slightly higher for people 45-55 and less than 5% higher for those 55-65, but still within the five year range. So, we basically shut down the global economy for old farts like me. Hind sight is 20-20, but maybe we should focus on reducing the FEAR level for young people, letting them get back to work and children return to school and focus more on increasing protection for older people. Over half the deaths in New York were caused by the FEAR that our hospitals would be overrun. That FEAR justified sending infected people back to nursing homes that are not set up to isolate highly infectious people; resulting in thousands of dead old folks.

FEAR will fade and humans will ramp up demand for hydrocarbon based products. It has actually started a lot faster than I thought it would.

Hang Tough, this is the fun part of an oil price cycle.

Since April 10 (Good Friday), which I marked as the peak of "Coronavirus Gloom & Doom" the S&P 500 Index is up 9.12% and the Sweet 16 is up 41.98%.