Oil & gas stocks setting up for a dip


Earlier this year in my Oil & Gas Outlook I once again discussed how the U.S. was leveraging Saudi Arabia to put pressure on Russia and Iran. It still isn’t a strong narrative in the media but it is clearly the case. I few astute analysts have caught on. I wonder if there is a concerted effort to keep this on the international down low. 

In the past couple weeks we have seen Iran agree to the outline of a deal on nuclear arms and Vlad Putin discuss having some economic normalcy. While I don’t trust either Russia or Iran, maybe diplomacy and economic pressure will work in bringing them to heel, even if it’s China’s heel and not ours. We’ll see. It would probably help negotiations if we didn’t have to send soldiers to Eastern Europe and intercept Iranian vessels off of Yemen.

In any case, in the short run there is some tranquility in oil markets and that probably means lower prices for a brief period before driving season in the U.S. Earnings for many oil and gas related stocks are not looking good. Many of the stocks are overbought on short-term measures and are likely to see pullbacks. Those pullbacks are likely to be buying opportunities as the longer-term trends have stabilized and in some cases are trending ever so slightly up.

In this week’s Trends update I cover over a dozen oil & gas stocks. Our basic strategy is to wait out the next pullback and buy several of our favorites on oversold signals. Because the longer term trend has levelized or turned up in some cases, a short-term pullback is a buying opportunity. We will be getting significant long-term value on the companies we pick out, which will be spread across the sector, but with some emphasis on companies geared towards northeaster natural gas production.

Out of curiosity, how many miles do you plan to drive this summer. I’m looking at about 6000 of traveling on top of 4500 normal miles. I’ll make it a forum discussion. Oh yeah, I put up new forums this week. Join in.

I’m not going to keep you long this week, but I would like to point out that there are calls to start exporting oil from the U.S. That is a remarkably bad idea. It is being brought up by those who failed to plan properly for pullbacks in oil prices. Harold Hamm, who famously and proudly lifted Continental Resources hedges when oil was about $80/bbl is the loudest now calling for U.S. oil exports. He’s looking for a bailout because he screwed up. Don’t fall for it.

The U.S. is still a major oil importer. There is no reason to export oil that makes any economic or geopolitical sense for Americans. What we ought to be doing is converting a refinery or two from heavy sour crude to light sweet crude. Or, we could build a new refinery or two, seeing as we could use some more jobs – anybody in Washington D.C. listening?

While I know most don’t want to see oil use increase, the reality is that demand isn’t going to see significant destruction for well over a decade and probably two or three. Building a light sweet crude refinery in Oklahoma seems to make a lot of sense.

Keep an eye out for the three conditions for higher oil prices I pointed out in December on MarketWatch. Everyday that goes by is a day closer to oil getting back to $80/bbl, which I project for summer 2016. http://goo.gl/ikx08M

Kirk