Oil Week Ahead - Cutting Loose Of The $50 Anchor

Aug. 07, 2017 12:22 AM ETCHK, CTRA, COP, CVX, EOG, OIL-OLD, PSX, PXD, RICE-OLD, USO, XLE, XOM, XOP, SPY, OIH6 Comments
Markos Kaminis profile picture
Markos Kaminis
13.19K Followers

Summary

  • The week ahead for oil prices looks good in my opinion, with a break higher seen from the recent $50 anchor point.
  • The case for improving energy demand was confirmed by last week's employment data, and economic improvement is a long-term factor that can give oil prices traction.
  • OPEC and non-OPEC producers are meeting this week to nail down compliance to production quotas, and I expect the energy market to receive the reassurance it needs.
  • The possibility of U.S. sanctions against Venezuela's energy indusry remain in play and are supportive of oil prices.
  • Oil inventory data should be favorable for oil prices again this week.

The week ahead for oil should be driven by both long-term factors and short-term event catalysts. As a result, I expect oil prices to break higher from the $50 threshold that held crude through last week. In fact, I expect this run higher for oil will eventually lead to a breakout from the recent trading range top near $60 a barrel.

I believe oil prices rose significantly Friday for two separate reasons, one economic in nature and one sector specific. The good news for the energy sector is that at least one of the two factors should continue to serve higher oil prices. Where oil prices are gaining the best traction, today, is via the sustainable driver of improving demand for energy on global economic recovery.

Security 08-04-17
United States Oil (NYSEARCA:USO) +1.1%
iPath S&P GSCI Oil (NYSE: OIL) +1.4%
Energy Select Sector SPDR (NYSE: XLE) +0.3%
SPDR S&P Oil & Gas E&P (NYSE: XOP) +2.3%
Exxon Mobil (NYSE: XOM) -0.4%
Chevron (NYSE: CVX) +0.6%
ConocoPhillips (NYSE: COP) +1.5%
Phillips 66 (NYSE: PSX) -0.1%
Rice Energy (NYSE: RICE) +0.3%
Pioneer Natural Resources (NYSE: PXD) +0.2%
Cabot Oil & Gas (NYSE: COG) +0.6%
EOG Resources (NYSE: EOG) +1.7%
Chesapeake Energy (NYSE: CHK) +0.7%

The price of WTI Crude Oil (Nymex) September futures contracts rose 1.1% Friday, to $49.58. Oil found early support in the monthly jobs data, and it got a later push from favorable weekly rig count data. I think more than anything, antsy longs found relief in good news and short betters were forced to close positions. I expect that allowed oil prices to continue to gain on new capital support being drawn in now on tangible economic reasoning.

At least one of Friday's two catalysts should push oil prices higher in coming weeks and months, the case for improving demand. The Employment Situation Report for July showed healthy job growth of 209K, well above economists' expectations for 174K. It was a stellar data point for an economy near or at full employment, where job creation should be closer to 125K per month, in my estimation. The unemployment rate improved to 4.3%, from 4.4% in June, and employment participation gained as well. It was a positive report all around, and it reflects well on the economy.

I expect economic growth to improve upon Q2's 2.6% pace in the second half of this year and in 2018. In my report, Why Oil Prices will Break Out - The Demand Driver, I talk about my expectations for the underappreciated catalyst. I found confirmation of my views in this month's jobs data.

On Monday and Tuesday of this week, oil traders and energy sector investors will be eyeing Abu Dhabi for a meeting of OPEC and non-OPEC producers. The focal point of the meeting will be compliance to agreed upon production quotas. It is hoped by oil longs that something substantive will come of the meeting to give the energy market some assurance that forward production will see better compliance. I see a positive product of the meeting probable, but recent chatter indicates there will be some playing of the blame game as well, with some producers pointing to faulty secondary source independent data. Also, non-compliant Algeria and Venezuela will not attend. Nonetheless, I expect this meeting, which is intended to restore credibility and support price, to be carefully shaped to do so. Saudi led actions at the last meeting, and the U.A.E. announcement to further cut production that followed it set that process in motion.

Otherwise, the usual weekly oil inventory data will play big for oil prices again this week. Investors need to see net draws from crude and petroleum products for reassurance that the supply glut is being resolved in real time. Fortunately, last week's gasoline draw seems to imply there will be a decent draw from crude supplies this week. Full employment in America, and improving demand for energy in the USA, Europe and China, implies market balance is on the way, in my opinion. And I'll be discussing in a near-term report how another smart factor, set in play by Saudi Arabia, will help as well.

Baker Hughes Weekly Rig Count data was helpful to oil prices this week. The data showed the North American rig count dropped by 7 rigs, to 1,171 in the week ending August 4. U.S. rigs producing oil declined by one, to 765, and gas rigs fell by 3, to 189. This marked the second week in the last 14 showing a decrease in North American rig counts. I'm not sure we can expect the same next week, as oil prices are climbing again, but recently lower oil prices had some producers reconsidering capital expenditure plans this quarter, so it is possible.

Wildcards remain for the oil patch, namely in Venezuela. There remains the possibility, though its weighting is debatable due to repercussions to American firms, that the Trump Administration and/or Congress might seek to impose sanctions of some sort on Venezuela's critical energy sector. Sanctions to the sector would strike Venezuela where it hurts, and possibly increase pressure on its despot leader to allow free elections or to step down from office. The fact that sanctions are possible continue to weigh in favor of oil prices.

In conclusion, I am looking for oil prices to break to a higher level next week, mainly due to improving demand for energy globally. Last week's jobs figures provide confirmation of as much, and I believe investors are starting to agree with my view on the subject. The usual regular energy market data will weigh as well of course, as will the producers' meeting, but I expect, in favor of higher oil prices on net. For more of my regular work on the energy market, readers are welcome to follow the column here at Seeking Alpha.

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Markos N. Kaminis generated a 23% average annual return on "Strong Buy" stock selections over 5 years while working as a Senior Equity Analyst on Wall Street. As an internal whistle-blower, I sacrificed absolutely everything to do the right thing. And despite being an eyewitness and victim of terrorism on 9-11, I am currently volunteering at a busy border crossing helping Middle Eastern & North African refugees, most displaced by war or other horrors, to land safely in Europe. Despite my life experiences, I still have hope, and believe that we must persevere with patience (forgiveness), tolerance and love. I have determined to struggle for the better good of my brethren rather than for myself, and you'll see that play out over the course of the rest of my life. But I worked far too long and hard to become an excellent stock-picker to not incorporate this work into the fold. Markos N. Kaminis generated a 23% average annual return on "Strong Buy" stock selections over 5 years and ranked 2nd among a group of 60 analysts in-house as a Senior Equity Analyst over a seven-year period at Standard & Poor's. After proving his value in-house, he was promoted into a special role as an idea generator, supporting the portfolios of institutional clients as well as driving performance within S&P's recommended lists and portfolios. At times, Markos was responsible for up to 10% of the firm's entire "Strong Buy" list and is due a great deal of credit for the group's outstanding performance during his tenure. Markos followed a group of 30-40 Small and Mid-Cap firms, and was charged with finding new buy and sell candidates across industry sectors. He generated a 23% average annual return over five years on his "Strong Buy" recommendations, and 26% over three years ended 2004. He was ranked 1st of 60 analysts in-house for his "Strong Buy" performance over 4 years (2nd over 5). Markos also authored IPO research and wrote for high-level newsletters, The Outlook, Equity Insights and Emerging Opportunities, as well as for BusinessWeek Online. He represented his firm as an analytical expert commentator for major media, including television, Internet and through quotes and interviews in reputable publications. Besides predicting the stock market correction of 2015 through a series of prescient reports here in August. (see proof here: http://seekingalpha.com/article/3482226-investor-who-predicted-the-stock-market-correction-offers-an-update ), Markos also advised investors to buy stocks at the bottom of the market in mid-February 2016 and again post-Brexit at the trough, and to buy gold in January 2016 before the commodity started its move higher. More recently, he called the pickup in the economy for 2018, the upward move for stocks in 2018, and the breakout in oil, starting in June of 2017. See: June 15, 2017 – Buy Oil Back Now; August 1, 2017 – Why Oil Prices Will Break Out – The Demand Driver; September 30, 2017 – Why Oil Prices Can Break Out Part II: Vulnerable Supply; and January 26, 2018 – Up 44% Since Our June Bullish Turn – Oil Still Supported Here. While not perfect, over the years, Markos has made countless correct market and security calls for his followers, including forecasting the demise of J.C. Penney on the heralded CEO hire's disruptive plans, the bankruptcies of Washington Mutual and Pilgrim's Pride in the $30 and $20s, respectively, as well as the purchase of Facebook in the mid-$20s when it was considered a pariah post its IPO (today it is a market darling). Markos also warned of the real estate market collapse and the financial crisis in the early days of his blogging. What I personally want you to know about my plans: After witnessing the worst of Wall Street firsthand and having the ideal vision of my childhood career choice corrupted by reality, I almost switched to full-time charity work at age 40 and still have plans for several non-profit endeavors. The future is somewhat unknown, and I am open to employment offers for portfolio management or other ideas. While continuing to publish regularly, I expect to begin work on several book ideas that I believe are important for business, for our nation and for society. I may put  my stock selection skills, earned through blood, sweat and tears, to better use, and to make my own way. I would like to give investors something rare, a dignified partner who can manage money with integrity and a clear conscience about the degree of due diligence behind investment decisions... someone who cares more about your money than your wife. I hope readers will become followers of my column here & at my blog, so that when our numbers are substantial, we might start an investment fund or two. Prior to his Wall Street career, Mr. Kaminis spent time in the back-office, as a mutual fund accountant, where he managed for a time the work of two men. Before this, from age 11 to age 25, he worked as a carpenter's apprentice and carpenter with his father, in both commercial and residential projects. Mr. Kaminis has an intimate knowledge of the real estate (undergraduate degree in Real Estate and Finance) and construction market, as well as the restaurant industry. However, as a generalist stock analyst, he showed the ability to learn any and the most complicated of industries in short time - and he gamed every challenge presented to him. Mr. Kaminis earned his MBA at the Katz Graduate School of Business at the University of Pittsburgh, and his BA at Temple University in Philadelphia. However, Markos has been studying the stock market since age 13, when he determined his career path. He made his first investment at age 16, and funded much of his undergraduate education with the proceeds of his investing success. Mr. Kaminis continues to keep busy forecasting the economic path and securities market activity. Markos is considering the eventual start-up a long/short capital appreciation hedge fund. Such a fund would limit risk through beta reduction, using a diversification strategy targeting sector & industry and long & short position inclusion. At the same time, Markos' theoretical fund would seek maximum capital appreciation through the exploitation of Mr. Kaminis' inherent economic & market discernment gift and proven stock selection skills. Mr. Kaminis also has a team of a select few analysts, technicians, strategists and economists that he has been impressed by over the years, which he expects to tap for the project when the time is right. Mr. Kaminis welcomes your interest in such a potential forward effort, and looks forward to discussing his plans with those appropriate and within legal constraints. Markos toys with very early stage entrepreneurial efforts in the testing of certain business models, all of which he intends to tie to a planned non-profit project serving the most helpless among us. The tie will be that the businesses will give employment opportunity to individuals who would otherwise have difficulty finding gainful employment. It will house and heal the homeless, ex-convicts, those completing rehabilitation efforts for drug and other addictions, and others in need of help. Markos is currently Directing the widely syndicated blog he founded, "Wall Street Greek," and is writing for other well-known publications besides advancing several big ideas. Markos' column is syndicated across sites like the Boston Globe, Kiplinger Magazine, UPI and other reputable newspaper and TV websites, as well as private networks, Amazon Kindle, iPhone and more. In the past, he has written for RealMoney.com, Motley Fool and others. Requests to research specific companies are welcome, as we serve our readers. You may contact us via this blog's contact info. 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Disclosure: I am/we are long USO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My position is through options.

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