Showing posts from April, 2016

Fundamental Friday: 29 April 2016

Crude oil: Crude oil production posted another decline this past week as energy companies begin to reveal their first quarter earnings. Total output fell 15,000 b/d to a total of 8.938 million b/d, another new low for 2016 and evidence for a waning shale glut. A little over a month ago, estimates were 100,000 b/d higher on March 18th. The losses in output continue to be coupled with growing stocks as another 2 million barrel increase was logged last week. Stocks, now at 1.235 billion barrels. continue to drag on bullish outlooks as an oversupply could still persist long after production reaches a trough. Since the 100,000 b/d decrease in output, stockpiles have grown over 8 million barrels in the same period.

Refinery inputs fell last week by about 250,000 b/d to 15.847 million b/d breaching the 16 million b/d mark that was crossed the week before. Refinery utilization also fell by 1.3 percent. Last week's estimate of 88.1 percent sets a new six-week high after peaking at 91.4 per…

Aramco To Go Public

Of the behemoths that rule the global markets, none top the beating heart of the Kingdom of Saudi Arabia. The national company named Aramco was originally established in the 1930's as a joint venture by Saudi Arabia and Standard Oil after World War I after the Kingdom granted concessions to the U.S. company over its competition in Iraq. After equity in the company passed through many private portfolios, the government of Saudi Arabia started to build up their own stake in the oil company in 1973 and fully nationalized the entity in 1980.

But after 36 years, the Saudi Arabian Oil Company, formerly known as the Arabian American Oil Company, could find itself in the hands of U.S. financiers once again. A crown prince of Saudi Arabia has recently announced its consideration of an IPO on the New York Stock Exchange. He claimed that this public introduction will be the first step in a process to reduce the nation's dependence on energy revenue. The funds that are raised by auctionin…

Is It Safe To Bet On The Rebound?

The cyclicality and volatility of the market can be represented by a child playing on a swing in a playground. As the pendulum swings faster and faster in either direction, the rider finds himself invigorated by the prospect of flying higher and higher until the seat flips, chain loosens, and the individual falls to the ground. Often times, like the investors in the stock market, the child will jump back on the device that failed him just a few seconds ago. The oscillation of the market is not just represented by the prices traded on its exchanges, but also in the sentiment of its traders. The year of 2015 replicated these roller coaster-like symptoms to the throbbing hearts of portfolios everywhere. Despite its persistence in correcting equity prices, traders continued to throw wave after wave of bullishness behind falling prices. As a result, we find ourselves knocking on the door of an 18,000 Dow Jones Industrial Average and a 2,100 S&P 500, values prognosticated as speculative…

Fundamental Friday: 22 April 2016

Crude oil: U.S. producers have ushered in another week of falling production. For the week of April 15th, suppliers extracted 24,000 b/d less than the week before for a total of 8.953 million b/d. Producers continue to drop barrels from their operations, a trend that has yet to be reversed despite support for the price in the market. After six straight weeks of declines in the estimates, 125,000 b/d have been lost. Crude oil stocks speak of another underlying trend in U.S. oil markets. Last week, stocks increased again up about 2 million barrels to 1.233 billion total barrels. Despite falling output, stored supplies have increased 16.75 million over the duration of the production decline streak. As soon as stocks start to consistently even out week over week, investors can count on a stabilized market when this occurs.

Refinery inputs and operation remained mostly changed from last week.Total crude oil inputs increased by 63,000 b/d to 16.104 million b/d last week. Percent operable in…

A Legal Review of the Oil and Gas Industry

From climate change activists to communities burdened with a neighboring refinery, the threats of lawsuits can be rather annoying in a conflicted economic environment. Plaintiffs can easily be appeased when oil prices are high and revenue streams are growing. Analyzing the legal issues of a company offers information concerning the long-term liabilities of their balance sheet. In the oil and gas agency, the most popular form of legal attack is claims of pollution or labor disputes. Lawsuits and court cases can become muddled over long periods of times making the outcome uncertain and difficult in security analysis. Not only are settlement amounts convoluted by the legal terms in which they are discussed, but an appeal from the firm can delay, dilute, and even diminish the punishment or reward.

Today, I've compiled some of the more recent legal disputes involving some of the largest oil and gas companies on the market. No matter what the judgment is to be, the mere existence of a …

The Oil Game Heats Up As The Freeze Melts Down

In Doha this weekend, the world's largest oil producers met to discuss the possibility of an output freeze in hopes of supporting the depressed price of oil. Saudi Arabia and other OPEC nations invited its competitors to the negotiating table looking to bolster their energy income. Approximately 20 countries took their seats around the table representing over 50 million b/d of production, that's over half the 80 million b/d average that was produced in 2015. Here's a list of those participants from MarketWatch.

The goal of the meeting was to “agree on a collective OPEC and non-OPEC oil output freeze to January 2016 levels, in an effort to halt the nearly two-year oil price collapse,” said Economou. Members of OPEC such as Venezuela and Nigeria had already called on their own constituents to support the price of oil as their economies fell into a downturn. An interim freeze with Saudi Arabia, Kuwait, and the United Arab Emirates garnered hope for a broad freeze that could i…

Fundamental Friday: 15 April 2016

Crude oil: Domestic production fell this week again with U.S. suppliers now pumping less than 9 million b/d. The trend continued emphatically with a drop of 31,000 b/d to 8.977 million b/d last week. This marks the end of a 525-day stretch where output was beyond 9 million b/d, a phenomenon that may not be seen again if the current price trend remains. Stocks, curiously, jumped last week about 6.6 million barrels to 1.231 billion. This increase in stocks was most likely caused by smaller refinery inputs which dropped by about 500,000 b/d to 15.941 million b/d last week. Refinery utilization decreased as well, falling by almost 2 percentage points to 89.4%. Both values are still above their 5-year averages.

As stocks continue to build and storage capacity is strained, production and storage amounts could drop off even more. The increase in stockpiles and decrease in refinery inputs was mostly caused by Exxon's refinery fire.

Despite losses at the end of the week, The WTI spot price…

Halliburton-Baker Hughes Merger Denied

The mergers and acquisitions line is finally bustling with the news of two large oil services looking to give birth to a larger, more efficient firm that can thrive in a low price environment. Halliburton and Baker Hughes have been in talks of merging for a while now, a deal which could have significant implications for that particular industry.

The deal included an offer by Halliburton to buy out its rival for about $34.6 billion, reports DealBook. The collision course mapped out will help cut costs by almost $2 billion by meshing together the second and third rated operations in the country. By the terms of the deal, Halliburton would "pay 1.12 of its shares and $19 in cash for each Baker Hughes share...valued at about $78.62 a share." In the end, Halliburton would own 64% with Baker Hughes leadership left with a 34% minority. The proposal came as no surprise to investors who had begun to feel tension in the oil services industry as low crude prices significantly reduced d…

Fundamental Friday: 8 April 2016

Crude oil: As March came to a close last week, production levels of crude oil converged upon a significant amount. The Energy Information Administration estimated the 9.008 million b/d were pumped last week shedding 16,000 b/d of output. Over the past month, a decline of 70,000 b/d has been recorded after four straight drops in production. Since the beginning of this year, 211,000 b/d worth of production has been halted supporting the growth of oil prices. A continuance of this trend could result in bullish pressure on prices. Stocks fell by about 5 million barrels in the last week of March. This decline ended five straight weeks of gains which will likely add to the bullish pressure from production decreases. Nevertheless, March's net change for crude oil stocks was about 9 million barrels.

Refinery capacity increased last week as well fueling bullishness. Crude oil inputs jumped again last week, up 200,000 b/d to 16.433 million b/d total. Refinery utilization also gained one ful…

Why I'm Bullish XOM

Just a short technical session today reviewing a company that has shown its strength in the oil and gas industry. It's not hard to find reasons to be bullish Exxon-Mobil these days, but here's my technical analysis chiming in.

A first look at the chart shows a short-term bullish trend that started around the beginning of the month of February. In the first week, the price topped its 50-day then its 200-day moving averages gaining another $3 or $4. This trend was defined by a divergence of the oil major's price and the WTI spot price. This, in particular, is a very bullish signal as equities have been following the energy commodity closely (see the comparison of WTI and XOM before February). The MACD reversal indicator was very bullish in March with three crossovers touting reversals upward (but never breaking through). The next crossover, though, could result in resilient growth if supported by WTI. The RSI reads neutral momentum for the past couple months producing neith…

Unpacking the Saudi Bluffing Game

The bulls were back supporting oil again as its price ran up past $40 a barrel in the past week after expectations for a release in supply pressure looked to be a real possibility. Saudi Arabia showed the first signs of relenting when they signed an agreement win Qatar to freeze petroleum output at a certain level. Other members of OPEC have shown less enthusiasm towards the freeze that would only be effective if all exporters were on the same page. New bearish reports now fuel skepticism that this agreement will materialize as Russia pumps at a 30-year high of 10.91 million b/d and Iran's oil minister insists his country will continue to increase production.

In response, investors have traded WTI and Brent lower with losses of -7.96% and -7.34% over the past five trading sessions. Money managers partook in the reversal as regulatory data from the CFTC showed a 6.3% net reduction in their long positions last Friday. The chart above shows a resumption of a long-term downtrend that …

Fundamental Friday: 1 April 2016

Crude oil: On Wednesday, the Energy Information Industry estimated a third straight week of declining production at 9.022 million b/d. From last week, suppliers pumped 16,000 b/d less and since the beginning of the month pumped 56,000 b/d. This decrease in production come just a few weeks before a meeting between non-OPEC producers and Saudi Arabia is scheduled. A freeze might be unlikely if this trend continues. Stocks continued the trend of growth through the end of March with last week's estimate reported at 1.229 billion barrels, slightly higher by 2.3 million barrels.As production slows, the increasing stock trend may lose steam eventually. Look for the weekly change to shrink.

Crude oil inputs jumped 16.234 million b/d despite flat movement earlier in the month. The jump of 414,000 b/d represents the largest gain this month and brings the monthly change to a growth of 323,000 b/d. Rig utilization is also up at 90.4%. The last time more than 90% of rigs were operable was Janu…