Oil Update - August 2019

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Includes: BNO, DBO, DNO, DRIP, DTO, DWT, GUSH, IEO, NDP, NRGD, NRGO, NRGU, NRGZ, OIL, OILD, OILK, OILU, OILX, OLEM, OLO, PXE, SCO, SZO, UCO, USAI, USL, USO, USOD, USOI, USOU, UWT, WTID, WTIU, XOP, YGRN
by: Kevin Stecyk
Summary

I expect West Texas Intermediate oil prices to once again range between $52.50 and $62.50, which is the same range as my last month's forecast.

Many experts continue to believe that there will be more oil supply than demand for 2020.

In my view, valuations for oil and gas companies with strong balance sheets are extraordinarily low.

I expect West Texas Intermediate oil prices to once again range between $52.50 and $62.50, which is the same range as my last month's forecast.

August has been a difficult and volatile month for oil prices and equities. There were the US-China tariff flareups followed by the G7. Yet, oil prices did not dip significantly. And this past inventory report from the EIA showed a much larger-than-expected withdrawal of about ten million barrels.

Of course, there are still concerns about a global recession damping oil demand. The US-Iran situation seems as though it is not going to be resolved soon. Many experts continue to believe that there will be more oil supply than demand for 2020. And, as we saw this month, the US-China negotiations are fraught with difficulties and uncertainties.

As an aside, on August 16, Barron's published an article titled "Wall Street Has Abandoned Oil and Gas Stocks. You Shouldn't." (subscription required) by Andrew Bary. In my view, valuations for oil and gas companies with strong balance sheets are extraordinarily low. On August 30, the Wall Street Journal published an article titled "Oil and Gas Bankruptcies Grow as Investors Lose Appetite for Shale" (subscription required) by Rebecca Elliot and Christopher M. Matthews. As the title suggests, this article discusses the challenges for shale companies, especially those lacking adequate resources to weather storms. Gary Ross, founder of PIRA Energy Group and current CEO of Black Gold Investors LLC, gave an excellent Bloomberg video interview where he stated that he expects oil demand to pick up in the fourth quarter.

Even with the ratcheting up of trade tensions in August that increased uncertainty and volatility, I expect WTI oil prices to remain between $52.50 and $62.50.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.