What happened on Wednesday?
Posted: Wed Dec 23, 2015 5:54 pm
Last week I predicted that when tax loss selling finally ended that we would see a rebound in the share prices. I sure didn't expect this big of a bounce. What happened on Wednesday was a combination of fresh money moving into an oversold sector combined with a bullish oil storage report.
Prior to year-end, the refiners like to reduce oil in storage, so they don't have to pay property taxes on it. Combine that with the fact that increased demand for heating oil is just ahead and you have the recipe for another bullish storage report next week. As you know by now, I don't put a lot of confidence in the EIA's weekly reports, so don't hold your breath on this one.
However, I do think we will see a "rotation" of money into the energy sector in January that should get 2016 off to a good start. That is what happened in 2010.
I believe we are entering the final stage of this "Price Cycle" or "Price War". OPEC can claim "victory" by saying they have put a stop to U.S. shale oil production growth. Even if the price of oil jumped to $60/bbl tomorrow, we will not see a big increase in drilling activity. No matter how high oil prices go, it will take a year to mobilize the capital, people and equipment to get U.S. production rising again.
The decline of oil prices from $100/bbl to $35/bbl has cost OPEC members over $500 Billion. That is a major shift of wealth from the exporting countries to the importing countries.
> U.S. consumer alone pocketed close to $200 billion in savings on gasoline and other liquid fuels.
> SUV and pickup sales are up double digits and hybrids got hammered.
> Demand for refined products increased by 1.8 million barrels per day in 2015.
> IEA predicts demand will increase another 1.2 million barrels per day in 2016. Unless the global economy slows, I predict that demand will increase much more than that. In 2010, the "rebound year" of the last oil price cycle, IEA's initial demand forecast was 1.0 million barrels per day increase and the actual increase was 3.3 million barrels per day. I doubt we see that big of an increase in 2016, but I think a 2.0 mmbbl per day increase is definitely in range. All of those new low mileage SUVs and pickups are going to be driven.
If 2016 is anything like 2010 it will be a very good year for energy sector investors.
In my opinion, the Sweet 16 and all of our model portfolio companies are oversold. They are trading at prices that can only be justified if you believe oil will stay under $40/bbl and natural gas will stay under $2.00/mcf FOREVER.
I believe non-OPEC oil production will fall by 150,000 to 200,000 barrels per day in 2016. When that is confirmed, the speculators that control near-term oil prices will cover their shorts and go long. There was a lot of short covering on Wednesday.
Natural gas is another story. North America is pretty much a closed market. Although we are the world's biggest natural gas consumer, we are also the largest producer of gas. The massive recoverable gas reserves in the Marcellus/Utica are "God's Gift to America", but they are definitely going to keep a lid on gas prices. A cold first quarter, especially if it drives deep into the South, should help. However, I think the best gas price we can hope for in 2016 is $2.50/mcf. Ramping up LNG exports should help.
IMO we have idiots running this country. If they could only grasp the concept that all of the cheap, clean burning energy we have (which BTW sits right in the middle of the U.S. manufacturing region) gives the U.S. a HUGE advantage over the rest of the world. Our cheap energy trumps cheap labor, but our Washington idiots would rather over tax and over regulate American business than do what is best for the economy.
I appreciate all of your support. We have lost about 100 EPG members during this oil Price War. Picking the companies that will survive and thrive during the rebound phase is the key to market beating results. I'm working my tail off to help you find them. I hope you all read the profile on Earthstone Energy (ESTE) we sent out yesterday. I am featuring the company in an article I wrote for Oilprice.com that will "Go Global" next week. Most of the articles I've written for OIlprice.com get over 10,000 hits the first day. Not sure that will do a darn thing for the share price, but it will definitely draw a few more potential investors to ESTE.
Susan & I are off to Dallas in the morning for Christmas with my son. I will be checking in here a few times.
Merry Christmas
Prior to year-end, the refiners like to reduce oil in storage, so they don't have to pay property taxes on it. Combine that with the fact that increased demand for heating oil is just ahead and you have the recipe for another bullish storage report next week. As you know by now, I don't put a lot of confidence in the EIA's weekly reports, so don't hold your breath on this one.
However, I do think we will see a "rotation" of money into the energy sector in January that should get 2016 off to a good start. That is what happened in 2010.
I believe we are entering the final stage of this "Price Cycle" or "Price War". OPEC can claim "victory" by saying they have put a stop to U.S. shale oil production growth. Even if the price of oil jumped to $60/bbl tomorrow, we will not see a big increase in drilling activity. No matter how high oil prices go, it will take a year to mobilize the capital, people and equipment to get U.S. production rising again.
The decline of oil prices from $100/bbl to $35/bbl has cost OPEC members over $500 Billion. That is a major shift of wealth from the exporting countries to the importing countries.
> U.S. consumer alone pocketed close to $200 billion in savings on gasoline and other liquid fuels.
> SUV and pickup sales are up double digits and hybrids got hammered.
> Demand for refined products increased by 1.8 million barrels per day in 2015.
> IEA predicts demand will increase another 1.2 million barrels per day in 2016. Unless the global economy slows, I predict that demand will increase much more than that. In 2010, the "rebound year" of the last oil price cycle, IEA's initial demand forecast was 1.0 million barrels per day increase and the actual increase was 3.3 million barrels per day. I doubt we see that big of an increase in 2016, but I think a 2.0 mmbbl per day increase is definitely in range. All of those new low mileage SUVs and pickups are going to be driven.
If 2016 is anything like 2010 it will be a very good year for energy sector investors.
In my opinion, the Sweet 16 and all of our model portfolio companies are oversold. They are trading at prices that can only be justified if you believe oil will stay under $40/bbl and natural gas will stay under $2.00/mcf FOREVER.
I believe non-OPEC oil production will fall by 150,000 to 200,000 barrels per day in 2016. When that is confirmed, the speculators that control near-term oil prices will cover their shorts and go long. There was a lot of short covering on Wednesday.
Natural gas is another story. North America is pretty much a closed market. Although we are the world's biggest natural gas consumer, we are also the largest producer of gas. The massive recoverable gas reserves in the Marcellus/Utica are "God's Gift to America", but they are definitely going to keep a lid on gas prices. A cold first quarter, especially if it drives deep into the South, should help. However, I think the best gas price we can hope for in 2016 is $2.50/mcf. Ramping up LNG exports should help.
IMO we have idiots running this country. If they could only grasp the concept that all of the cheap, clean burning energy we have (which BTW sits right in the middle of the U.S. manufacturing region) gives the U.S. a HUGE advantage over the rest of the world. Our cheap energy trumps cheap labor, but our Washington idiots would rather over tax and over regulate American business than do what is best for the economy.
I appreciate all of your support. We have lost about 100 EPG members during this oil Price War. Picking the companies that will survive and thrive during the rebound phase is the key to market beating results. I'm working my tail off to help you find them. I hope you all read the profile on Earthstone Energy (ESTE) we sent out yesterday. I am featuring the company in an article I wrote for Oilprice.com that will "Go Global" next week. Most of the articles I've written for OIlprice.com get over 10,000 hits the first day. Not sure that will do a darn thing for the share price, but it will definitely draw a few more potential investors to ESTE.
Susan & I are off to Dallas in the morning for Christmas with my son. I will be checking in here a few times.
Merry Christmas