Sweet 16 Update - Nov 5
Posted: Sat Nov 05, 2016 1:35 pm
The Sweet 16 dropped 5.71% for the week ending November 4th. It is now up 34.52% year-to-date. The S&P 500 Index dropped 2.02% and is now up just 2.02% YTD. Yes, exactly in half in one week. The overall market has declined for 9 straight trading days.
WHY??????????????
> Wall Street fears change. Ten days ago they were sure Hilary Clinton was going to be the next president. Now Trump is surging, thanks to Hilary's little problem with the FBI.
> Oil prices have pulled back because of all the noise about the OPEC production agreement and last week's bearish EIA oil storage report.
> Natural gas prices have pulled back because of a warm start to November.
14 of the 16 companies have reported Q3 results (CXO and FANG will report early next week). All Q3 results have been in-line with my forecast models. CLR and XEC reported production slightly below my forecast, but they had good reasons for it and their production will ramp up into year-end. Share prices for DVN, EOG, PDCE and RSPP all moved higher last week despite the crappy market conditions. Devon Energy (DVN) will definitely be among my Top Picks for 2017.
IMO Wall Street should not fear a Trump presidency. Overall, his ideas seem to be good for business and all that talk about tearing up trade agreements like NAFTA are a bunch of hot air. He may do it eventually, but he needs Congress to approve it and that will take time. As we all know, nothing moves fast in Washington. If Hilary does manage to get elected, it will put Washington into total gridlock since she will be under investigation for a long time. I wonder if a president can be impeached before they are sworn in.
Oil Prices: As I have been saying for two months, we are "waiting on OPEC". Everyone has an opinion on what OPEC will say on November 30 about an agreement to curb production. They know they need to do something, but it is hard for people who hate each other to agree on anything. Regardless of what OPEC does or doesn't do, the cartel cannot meet future demand for oil on their own. The longer oil stays under $50/bbl, the higher the chance of an oil shortage in 2018. If you paid attention to my last oil & gas market podcast, you know that EIA is now forecasting an oil supply shortage in 2018.
Gas Prices: We are going to have a winter this year. A SIGNIFICANT change in the North American weather pattern is less than two weeks away. Here is a Fun Fact for you to consider: Over the last 26 weeks (May thru October), natural gas in storage increased by 1,338 Bcf. That sounds like a lot until you compare it to the 5-year average for the same period of 2,005 Bcf. The U.S. gas market is MUCH TIGHTER than it was last year and winter heating season is just two weeks away. Just a NORMAL WINTER should push natural gas and NGL prices higher.
Updated forecast models for all of the companies that have reported 3Q results are now available on the EPG website. I will update CXO and FANG as soon as I can next week.
Gulfport Energy (GPOR) is now down 5.9% YTD, which is insane when you consider how much better shape the company is in. They have a "different" way of reporting oil & gas revenues, which I think is a bit confusing to Wall Street. Focus on cash flow per share and the very strong production growth they will report the next two quarters. Also, take the time to go through their recent corporate presentation and I think you will agree that GPOR has a lot of upside.
Remember, that this year's reported earnings mean almost nothing for upstream companies. GAAP accounting rules are extremely distortive during periods of big moves in commodity prices. Those big non-cash impairment charges just mean lower DD&A rates (and higher EPS) in the future. Focus on operating cash flows, production growth and liquidity.
The United States oil & gas industry MUST SURVIVE in order to meet this world's relentlessly increasing demand for energy. Demand for hydrocarbon based liquid fuels goes up by at least 1.2 million barrels per day each year. Even Hilary cannot screw it up.
WHY??????????????
> Wall Street fears change. Ten days ago they were sure Hilary Clinton was going to be the next president. Now Trump is surging, thanks to Hilary's little problem with the FBI.
> Oil prices have pulled back because of all the noise about the OPEC production agreement and last week's bearish EIA oil storage report.
> Natural gas prices have pulled back because of a warm start to November.
14 of the 16 companies have reported Q3 results (CXO and FANG will report early next week). All Q3 results have been in-line with my forecast models. CLR and XEC reported production slightly below my forecast, but they had good reasons for it and their production will ramp up into year-end. Share prices for DVN, EOG, PDCE and RSPP all moved higher last week despite the crappy market conditions. Devon Energy (DVN) will definitely be among my Top Picks for 2017.
IMO Wall Street should not fear a Trump presidency. Overall, his ideas seem to be good for business and all that talk about tearing up trade agreements like NAFTA are a bunch of hot air. He may do it eventually, but he needs Congress to approve it and that will take time. As we all know, nothing moves fast in Washington. If Hilary does manage to get elected, it will put Washington into total gridlock since she will be under investigation for a long time. I wonder if a president can be impeached before they are sworn in.
Oil Prices: As I have been saying for two months, we are "waiting on OPEC". Everyone has an opinion on what OPEC will say on November 30 about an agreement to curb production. They know they need to do something, but it is hard for people who hate each other to agree on anything. Regardless of what OPEC does or doesn't do, the cartel cannot meet future demand for oil on their own. The longer oil stays under $50/bbl, the higher the chance of an oil shortage in 2018. If you paid attention to my last oil & gas market podcast, you know that EIA is now forecasting an oil supply shortage in 2018.
Gas Prices: We are going to have a winter this year. A SIGNIFICANT change in the North American weather pattern is less than two weeks away. Here is a Fun Fact for you to consider: Over the last 26 weeks (May thru October), natural gas in storage increased by 1,338 Bcf. That sounds like a lot until you compare it to the 5-year average for the same period of 2,005 Bcf. The U.S. gas market is MUCH TIGHTER than it was last year and winter heating season is just two weeks away. Just a NORMAL WINTER should push natural gas and NGL prices higher.
Updated forecast models for all of the companies that have reported 3Q results are now available on the EPG website. I will update CXO and FANG as soon as I can next week.
Gulfport Energy (GPOR) is now down 5.9% YTD, which is insane when you consider how much better shape the company is in. They have a "different" way of reporting oil & gas revenues, which I think is a bit confusing to Wall Street. Focus on cash flow per share and the very strong production growth they will report the next two quarters. Also, take the time to go through their recent corporate presentation and I think you will agree that GPOR has a lot of upside.
Remember, that this year's reported earnings mean almost nothing for upstream companies. GAAP accounting rules are extremely distortive during periods of big moves in commodity prices. Those big non-cash impairment charges just mean lower DD&A rates (and higher EPS) in the future. Focus on operating cash flows, production growth and liquidity.
The United States oil & gas industry MUST SURVIVE in order to meet this world's relentlessly increasing demand for energy. Demand for hydrocarbon based liquid fuels goes up by at least 1.2 million barrels per day each year. Even Hilary cannot screw it up.