Energy Prospectus

Per Barrons the price of oil to drift higher as demand continues to rise.

http://blogs.barrons.com/stockstowatcht ... hoobarrons

The NYMEX strip looks very strong for those heavily weighted to oil. The Sweet 16 is HEAVILY weighted to oil.

You should all take a look at MIND. Their business is directly tied to the exploration budgets of the majors, which in turn are directly tied to oil prices. MIND is going to have a very strong 4th quarter. EPS will triple from Q3 to Q4. My prediction is that it will continue to drift up to my Fair Value price of $13.50.

This week, the price of a barrel of oil surged above $90 for the first time since October 2008. Global demand for oil is on track to an all-time high this year, according to the International Energy Agency. The agency projects further demand growth for 2011. Also this week, economically sensitive copper hit an all-time peak. Many other commodities are at or near multiyear highs.

OPEC Caught Lying...
By Nick Hodge | Tuesday, December 28th, 2010
Now that the Peak has passed, all sorts of interesting tidbits are emerging.
Take the December 13th BusinessWeek article that declared OPEC is cheating the most since 2004...
Apparently, the oil cartel pumped 26.78 million barrels per day (mmbd) this year. Yet they have a production limit of only 24.845 mmbd, set at the end of 2008 in response to the recession.
So your friendly neighborhood fuel gang has been breaking its output limit by 1.934 million barrels — everyday, all year long.
With crude at its highest price in two years, overproduction allows OPEC members to boost profits without formally changing output targets.
An extra 1.934 mmbd at $80 works out to a nice “informal” $56.47 billion boost.

OPEC's been lying... That's nothing new.
What's important here is to note the willingness to extract as much as they can as prices rise.

My Take: OPEC is gradually eating into its excess capacity. The last time OPEC got under 2 million bbls. per day of excess capacity the price of oil ran up to over $147/bbl. - Dan

Analysts, start your engines
If the price of oil creeps high enough, OPEC will officially raise its target to cash in.
$100 seems to be the obvious trigger to make that happen, and the consensus is that it will happen this year.
Oil's at $91.43 as I write this — up 30% from the year's low.
Goldman says it'll “average $100 in 2010 and $110 in 2012.” JPMorgan says we'll see $120 by the end of 2012.
Adding to the pricing fire, U.S. stockpiles declined by 19 million barrels this month thanks to intense cold and holiday travel. That's the biggest monthly decrease since December 2006.
I'm sure you've noticed gas station marquee numbers are back on the march.

A $3.00 appetizer
Prices at the pump have officially broken $3.00 for the first time since October 2008. And they aren't expected to ease anytime soon.
John Hofmeister (former President of Shell, current Head of Citizens for Affordable Energy) is touring TV land this week with a new prediction:
We'll be paying $5.00 per gallon in less than two years, and sometime between 2018 and 2020 there will be another 1970s-style energy shortage requiring rationing.
And this guy didn't just jump on the bandwagon; he's been saying for years that “the last days of affordable gas are behind us.”
He's been attacking our national energy policy since the turn of the century, saying business as usual would lead us to an “energy abyss”.
And like an ever-increasing cadre of oil execs, he admits conventional oil production is in decline, and is convinced we must turn to unconventional sources to fill the gap — and avoid gas station rationing.
There's still time to put this trend to work for your portfolio. Oil at $200 per barrel implies a 122% increase from today's prices.

All of my Sweet 16 Fair Value estimates are based on forecast models that use $80/bbl for NYMEX oil in 2011.

Technically, NYMEX crude has accelerated higher over the last few weeks on a low volume move. While the market looks poised to make new gains as the calendar rolls over we wouldn’t be surprised to see a retracement back into the middle of the bull channel. We see key support at $87.50 and $81.00, respectively.

If oil closes above $92/bbl for a couple days it would signal a move to a higher trading range. Regardless, the trend is definitely supporting higher oil prices.

From Caprock Risk Management:

Crude Breaks Overhead Resistance, Targeting $100 Near-Term, Instituting Our 2011 Price Target of $120



With crude oil taking out overhead resistance at the $88/$89 level and closing above $90, technically the market is bullish. In addition, the longevity of the recent sideways move for crude oil and the energy complex usually impacts the strength of the break out in either direction. Given this, if the energy complex is able to sustain the upward move higher, energy prices could be coiling for a major move higher. We have been reiterating our near-term price target of $100 over the last few months and continue to do so.



Looking ahead for 2011, we believe two major themes will emerge: 1) the dollar's strength or weakness will have less of an impact on the direction of energy prices and 2) fundamentals in the energy complex will become bullish, especially during the second half of the year where we believe the margin between global demand and supply will narrow considerable as the global economy recovers led by emerging markets and China. We are instituting our 2011 price target of $120 a barrel.



Reiterating Our Top Plays & Investment Themes:



Crude Oil: We recommend investors seeking exposure to producers to focus on big cap names and oil field service stocks (onshore) that are catering to the shale plays around the U.S. Our top pick remains Exxon (ticker XOM), which has lagged its peer group. We added Chevron (CVX) to the mix at the beginning of the year and the stock has performed extremely well. Both of these big cap names provide investors a safe haven via their dividend yield and improving fundamentals. For aggressive investors, we recommend taking profits in CVX and rotating in XOM. For broader base exposure, we are favorable on the Oil Services HOLDRs Trust (ticker OIH), especially after the offshore spill. Domestic oil field service companies should do very well with shale benefiting from a strong move from offshore drilling to onshore drilling. We reiterate our stance to reduce or avoid the oil ETF (ticker USO) as the strong contango (negative yield roll) and loose parameters (i.e. allowed to have major tracking error to the commodity) make it less desirable to stocks such as Exxon). A viable ETF swap out of the USO would be the Energy Select SPDR (Ticker XLE).



Products: We are less excited about refineries as we head into the heating the season. There are robust inventories for heating oil stocks and with the driving the season months away, we'd prefer producers over refiners. Within the group, our top picks are Tesoro (ticker TSO), Valero (ticker VLO) and Chevron (ticker CVX).



Natural Gas: With a sluggish U.S. domestic economy dragging on demand, a weak dollar that doesn't help natural gas prices and robust production activity onshore from natural gas shale plays, natural gas prices are once again under pressure. With that said and at current price levels, we believe the market doesn't fully appreciate improving fundamentals for the natural gas market. Natural gas prices are one headline away out of D.C. (transferring out trucking fleet from diesel to Natural gas) from shifting the supply and demand dynamics into a favorable position for higher prices. For investors looking for other options than the UNG, EOG Resources (ticker EOG) is highly correlated to the price of natural gas. Our top picks are Transocean (ticker RIG), RPC, Inc (ticker RES), which has a very conservative management team and strong balance sheet and for aggressive investors, Dawson Geophysical (ticker DWSN) and/or the natural gas ETF, (ticker UNG). In regards to the UNG, investors need to be aware and incorporate the structural clarity, or lack thereof, over the short-term and assimilate that in clients' risk profiles.