Much of the discussion this week I believe will come from the International Energy Agency (IEA) meeting Mon-Wed in Algeria. The OPEC oil ministers will have a side meeting there that will likely culminate in an agreement with other major oil producing nations on production limits.
While agreed peak production quotas is not a definite outcome, I think it has to happen. Oil production at $45/bbl is simply not profitable, and industry investment flows for capex have been negative for two years running, which hasn’t happened for 30 years, i.e., since 1986. There is talk that demand is weak, but that is just a slowing of growth. Demand is increasing.
Bottom line is that I believe an announcement — the one I think likely to come from this IEA conference — will cause WTIC and Brent Oil prices to quickly lift by +10% and in October by 33% to $60 for WTIC. What that explosive result would do to Oiler prices is send them gushing at a much higher rate. In fact, the share prices of some of the much beaten-down, high-cost producers will soar.
Of course, I have been known to be early. I’ve also been known to be wrong! All I’m saying here is that if my forecast looks to you to be accurate, do not be a quick seller of your Oilers. The Oil Services stocks ($OSX) and Oil Producers ($XOI) have a long Bull run ahead.
Bankers ($BKX) will also be equity market leaders going forward although, like the Goldminers ($XAU), I think the upside will be somewhat limited until other factors come into play. Bankers need higher interest rates and much more IPO and M&A business to crank up earnings. Similarly, Goldminer earnings are needing much higher Gold prices, which I think will definitely come, but not until interest rates ramp up, neither of which are likely until probably 2018. In the meantime though, long-term investors will be building positions in these two industries.
Regarding Oil markets, there is no shortage of yada-yada media ramblings in the marketplace, but all we are interested in is stock performance, so we are clearly on the look-out only for possible triggers for price change.
This morning my reading has included the following:
Zacks Research wrote today that one of four market risk scenarios that might play out for markets in the next three months, including the opposite view to mine:
Crude is trading around $46, in the middle of its recent range between $40 and $50. The black stuff is most likely to stay within this range, but a break of the $40 level due to oversupply could harm the energy sector. A significant pullback in energy prices would drag equity markets lower as it did earlier in the year.
Regarding investment flows in the Oil industry, this article might be helpful:
http://www.iea.org/newsroomandevents/asktheexperts/how-investment-is-affecting-the-outlook-for-oil.html
Regarding the reporting of the most recent demand and supply data from IEA, there was first a negative report that caused Oiler stocks to be hammered, and then an opposing view the next day that caused them to lift a lot:
http://www.businessinsider.com/iea-oil-market-report-for-september-2016-2016-9
Regarding my forecast of the Oil production quota agreement that is likely to come out of the IEA meeting in Algeria that starts on Monday and runs through Wednesday, here is an article that you might find interesting:
http://petroglobalnews.com/2016/08/report-opec-sets-informal-meeting-for-september/
Regarding the Goldminers, I have been receiving some pretty good research from Raymond James, which I’d like to share. As you recall if you are a long-term participant in the blog, I used to provide many of these reports. Unfortunately there were incidents where UBS, Morgan Stanley and Merrill Lynch lawyers contacted me to say that their executive committees were not pleased I was putting out their research to my readers before they could get it in front of their clients. Having the senior lawyer for these units of Humongous Bank & Broker (HB&B) threaten to put me out of business clearly got my attention. My pleas that I was providing them a free service fell on deaf ears, so I prudently removed the links. But, I never did have an issue with any of the Goldminer research I reproduced, so we’ll provide what we can for now.
Finally, when capital market prices become unstable, as they have been recently, it pays to look for the candlestick chart wicks for indication of trend and cycle reversals.
If you don’t understand what a chart wick is — and it’s important that you do — you may find these articles to be helpful:
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks
http://www.bigtrends.com/education/watch-the-wicks-candlestick-chart-trading/
Enjoy your weekend.
/Bill
