• 20 hours The Shroom Boom Is Here To Stay
  • 2 days Biden Will Be A Boon For Solar Stocks
  • 4 days The Gold Rally Has Finally Run Out Of Steam
  • 4 days Citibank Analyst Predicts $300k Bitcoin By End Of 2021
  • 7 days Bitcoin Lives Up To Its Safe Haven Status In A Big Way
  • 7 days 14 Million People Will Lose Unemployment Benefits On December 31st
  • 9 days Why 12 Million American Millionaires Isn’t Good News
  • 10 days Big Oil Is Paying The Price For Investing In Renewables
  • 11 days The Banking Industry’s $35 Billion Gravy Train Could Disappear
  • 12 days Did Amazon Just Democratize Prescription Drugs?
  • 13 days The Private Space Race Just Got Very Real
  • 15 days Short Sellers Are Willing Big In This Turbulent Market
  • 16 days SpaceX Gets Go-Ahead To Send Humans Into Space
  • 17 days Saudi Arabia Lost $27 Billion In Oil Crash
  • 18 days China’s Big Tech Takes A Hit As Regulators Crack Down
  • 19 days Black Friday Could Be Retailers’ Only Hope
  • 20 days Why You Should Not Dump Your Stay At Home Stocks Just Yet
  • 21 days The Real Reason Why Uber And Lyft Stocks Have Soared Nearly 50%
  • 23 days Bitcoin Heads Towards $16,000 And No One’s Cashing In
  • 24 days Elon Musk’s $250 Tesla Tequila Is Already Sold Out
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Oilprice.com

Oilprice.com

Writer, OilPrice.com

Information/Articles and Prices on a wide range of commodities: We have assembled a team of experienced writers to provide you with information on Crude Oil,…

Contact Author

  1. Home
  2. Markets
  3. Other

Why Isn't Wall St. Backing The Next Shale Boom?

Only four of the companies in our Large-Cap Growth Portfolio are trading today in the upper half of their 52-week ranges: Concho Resources (CXO), Continental Resources (CLR), EOG Resources (EOG) and Diamondback Energy (FANG).

No doubt, these four companies are solid and have a lot of running room, but so are the other 12 companies.

Plus, all of the upstream oil & gas companies we follow are in much better shape today than they were a year ago. So, why is the Wall Street Gang not moving more money into these high quality upstream companies?

1. FEAR: This oil price cycle has been much worse and lasted much longer than previous cycles. Wall Street analysts are afraid to recommend upstream oil & gas companies when they fear an oil price pullback might come the next morning. I guess it is easier to recommend buying Bitcoin in your IRA even though no one on earth can explain the valuation.

2. There is not much confidence in OPEC + Russia sticking with their production quotas, despite the fact that they have actually been quite disciplined. In my opinion, OPEC + Russia must push up oil prices if they wish to survive. Even Saudi Arabia cannot survive Brent under $70 for more than a few more years. 2/3s of the OPEC nations are already bankrupt.

3. Wall Street still thinks the U.S. shale oil producers will ramp up production each time they can hedge oil over $50. Per EIA: U.S. crude oil production rose by 25,000 barrels per day (bpd) last week to 9.71 million barrels per day, bringing output close to levels of top producers Russia and Saudi Arabia. Early this year, the EIA predicted that U.S. oil production would top 10.0 million barrels per day by December 31st. Obviously that isn’t going to happen. My swag is that it will be difficult for the U.S. to get to and maintain production over 10.0 million barrels per day, unless oil prices go a lot higher. Global demand for oil will continue to go up by 1,500,000 barrels per day year-after-year and there is no way that the United States can keep up with the global rate of demand growth on its own.

4. Fear that electric vehicles will destroy demand for gasoline. My swag: Twenty years from now EVs will still be less than 10 percent of the vehicles on the road. Plus, no one knows where the battery materials are coming from even to make that happen. I am very bullish on a few lithium companies, especially Nemaska Lithium (NMKEF). I think the home market for power storage is much larger than the vehicle market.Related: Gas Shortage Has China Backtracking On Coal Ban

So, what will it take for Wall Street to wake up? Answer: a "Paradigm Shift"

A paradigm shift occurs when the under-lying assumptions that a person is basing their actions on are proven or perceived to be wrong. New assumptions cause a change in behavior.

Here is what I believe will cause a Paradigm Shift on Wall Street with regard to investing in upstream oil & gas companies:

1. Within six months, OECD oil in storage will dip below the 5-year average. There is already less than 30-days’ supply of oil in OECD storage, which is more important than the 5-year average.

2. Each year there is a big increase in demand for oil in the second quarter. 2018 will be no different than previous years. U.S. inventories of refined products are low today, so refinery utilization should remain high (93.8 percent per yesterday's EIA report, compared to 90.4 percent a year ago). Winter has arrived in the Northeast U.S. an area that still burns a lot of oil for space heating.

3. The technical pattern for oil confirms strong support level at $55. This morning WTI moved briefly below $56 and then moved higher. In my opinion, the higher lows on each pullback since June 21st (when WTI dipped to $42) are very bullish.

Hang tough: It only takes a few Wall Street firms recommending rotation into the energy sector and "The Herd" will follow.

By Dan Steffens for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment

Leave a comment