New Trading Range for Oil - John Stolberg

One great advantage of writing an investment letter and moderating several investment discussion forums is I get ideas and research via email from my readers to consider.  Some give me permission to publish what they send me and use their names and others ask me to keep their contributions anonymous.

This commentary is from a long-time reader and newsletter subscriber, who has been a friend and contributor way back to my  "Personal Finance and Investing" days at Suite101 back in the early 2000s.   Trekkies will get a chuckle from his signature.

-------- Forwarded Message --------

Subject:	New Trading Range for Oil
Date:	Thu, 9 Jul 2015 05:22:13 -0500
From:	John Stolberg
To:	Kirk Lindstrom

Dear Kirk,

Oil markets are still oversupplied and recent weakness in China is likely to keep continued pressure on oil prices.

The US Energy Information Agency is likely to revise US oil production numbers down for May and June as it replaces extrapolations with real numbers which take up to 4 months to come in.  US oil production numbers are likely to continue downward for the rest of the year.

So the oil markets are still oversupplied, but not nearly as badly as they were before.  Prices broke out of their flag to the downside and previous support of $57 to $58 per barrel is now likely to become resistance.  However, I don't see prices below $48 per barrel for long.  A retest of the low is possible, but I expect the new trading range to be between $48 and $58 per barrel.

Gasoline sales usually peak for the year during the July 4th weekend.  Gasoline prices should be trending lower for the rest of the year.  Refiners have been churning out record volumes of gasoline at very high margins.  Their earnings for this summer are likely to be unsustainably high. I sold VLO earlier this year.  I tend to be early.  The stock is slightly higher now.  Valero is trading with a trailing P/E of less than 9 and a dividend rate of 2.4%.  PEG is 0.63 based on a 5-year earnings growth rate of 14%.  But the growth estimate for next year is –12.5%, so I see the potential for a stock price drop between now and when the end-of-year dividends are paid out.

Refiners are also profiting from US law which allows for the export of refined products but not US crude.  That law could change before the end of the year.

Qout

(aka John Stolberg)
Thanks John!

PS During our Suite101 days I signed my posts with "Kirk out"

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Short Squeeze on Oil

One great advantage of writing an investment letter and moderating several investment discussion forums is I get ideas and research via email from my readers to consider.  Some give me permission to publish what they send me and use their names and others ask me to keep their contributions anonymous.

This commentary is from a long-time reader and newsletter subscriber, who has been a friend and contributor way back to my  "Personal Finance and Investing" days at Suite101 back in the early 2000s.   Trekkies will get a chuckle from his signature.

-------- Forwarded Message --------

Subject:	Short Squeeze on Oil
Date:	Wed, 6 May 2015 14:24:10 -0500 (GMT-05:00)
From:	John Stolberg <qout@....>
To:	Kirk Lindstrom

Kirk,
Oil spiked up today on the first US crude inventory drawdown in a long time. However, a closer look at the data shows that US imports of crude last week hit an 18-year low. While the trend lower for imports is true, last week's data was an anomaly. Less crude was offloaded from tankers, so some had to be drawn from inventory.

Oil is up significantly since the retest of the low I predicted. A correction is possible. The spike today probably took out some of the short sellers, but I don't trust the bulls to carry this market higher. If invested in oil, a fairly tight stop-loss would seem to be prudent.

I'm just making observations, not giving investment advice., and I tend to be early.

Q_out

(aka John Stolberg)

Thanks John!

PS During our Suite101 days I signed my posts with "Kirk out"
PSS John sent me this on 5/6/15 but I only now (7/9/15) had time to publish it.  Click John Stolberg to read his most recent article.

WTIC Oil Price vs XLE, S&P500 and US Dollar

For more prices, see Crude Oil -  Crude Oil ETFs

Bakken Head Fake and the June Fracking Frenzy

One great advantage of writing an investment letter and moderating several investment discussion forums is I get ideas and research via email from my readers to consider.  Some give me permission to publish what they send me and use their names and others ask me to keep their contributions anonymous. 

This commentary is from a long-time reader and newsletter subscriber, who has been a friend and contributor way back to my  "Personal Finance and Investing" days at Suite101 back in the early 2000s.   Trekkies will get a chuckle from his signature.

On 4/17/2015 5:33 AM, John Stolberg wrote:

Dear Kirk,

Well completions in North Dakota have been delayed by both the drop in oil price and state limits on natural gas flaring.

Drillers have completed wells in the Bakken faster than they can get them connected to natural gas pipelines.  The state is trying to bring flaring of the unconnected natural gas under control.  In January, the requirements for natural gas capture rose from 74% to 78%.   Some well completions have been delayed while the collection pipelines get built out.  

• http://thebakken.com/articles/933/north-dakota-oil-production-declines-for-first-time-in-a-year

Secondly, most of the oil from shale wells comes in the first year, so oil companies have been delaying well completions until oil prices rise.  Well completions can be delayed by up to 12 months because state regulations give oil companies up to one year to complete their drilling.

Both factors have built a backlog of uncompleted wells in North Dakota that is now near 1,000.  All those uncompleted wells have resulted in a drop in North Dakota oil production in recent months.  But that list of wells drilled but not fracked, (the so-called "fracklog") may diminish in June.

That's because North Dakota's oil extraction tax has a low price trigger.  If the monthly average West Texas Intermediate oil price drops below $55.09 for five consecutive months, the 6.5% state extraction tax is suspended.  Oil prices in January, February and March were below the $55.09 trigger.  April's average so far is also below the threshold.  If May prices also hold below $55.09, expect a fracking frenzy in June.  

• http://blogs.platts.com/2015/03/20/tax-time-bakken-oil-summer/

Q_out

(aka John Stolberg)

Thanks John!

PS During our Suite101 days I signed my posts with "Kirk out"
PSS John sent me this on 4/17/15 but I only now (7/9/15) had time to publish it.  Click John Stolberg to read his most recent article.