• August 10, 2020

ELAM: Don’t get complacent quite yet - Odessa American: Inthepipeline

ELAM: Don’t get complacent quite yet

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Posted: Sunday, March 22, 2020 4:00 am

What I am trying to do is prevent the oil and gas sector from disappearing over the next 18 months

CEO Scott Sheffield, Pioneer Natural Resources

Here is an easy to understand Elliott Wave analysis of the stock market decline since the top Feb. 12 at 29,586.

Wave One Down – 29,586 – 25,000 Gee, this is a surprise, what’s wrong?

Wave Two Up – 25,000 – 27,000 Okay, things are not nearly as bad as the media is making them out to be.

Wave Three Down – 27,000 – 19,000. Something is seriously wrong, energy shares are in shambles.

Wave Four under way – After a record oil price decline, a record percentage increase occurs, OK, the big guys have this under control.

Wave Five, yet to begin – Prices fall to the 16,000 – 18,000 level wiping out half of the Feb. 12 market capitalization.

I strongly believe this is a short-term guide to what is most likely to happen. While the Industrials have declined about 35 percent, the transports are down 45 percent, suggesting lower prices ahead.

Thursday afternoon, I compiled a potential “shopping list” of energy shares. The price declines are in the panic zone, Nustar NS has lost 80 percent of its February high. If it could maintain its dividend it would be a 35 percent yield. That is not likely.

To this point, we have been told the international majors like Exxon Mobil, have strong enough balance sheets to weather this storm. But that was a couple of weeks ago. XOM has lost 50 percent of its market value in 2.5 months. The dividend, if it survives, is a whopping 10 percent. Is that a buy, or an alarm signal for the entire industry?

The problem for energy is two-fold. First the Saudis and Russia have engaged in a price war, calculated to wipe out the U.S. shale producers. This is having that effect. Second, with everyone staying at home, and shipping and airline demand all cancelled, there is lackluster demand for all things energy. That is why Valero VLO has lost 2/3 of its value since the February high.

The industry is asking for diplomatic help including sanctions against Russia. Asking the Saudis to cut production would only play into Russia’s hands, which is undesirable from the Mid-East Standpoint. And threatening Russia is problematic, as relations are reverting to Cold War Status.

Elsewhere the rush is on for dollars. Ford cut its dividend, and Boeing has lost two thirds of its value.

The balance sheets of companies are only an illusion. The illusion persists as long as investors believe asset values. But should faith in the assets fall, the liabilities still stand.

And that is where Wall Street is today, scrambling for cash.

In a final note, it appears the long romance with higher education may have ended. Universities are cancelling classes (pardon, going online) but not necessarily refunding tuition or room and board. The first signs of student discord are evident, questioning school expenditures. This is yet another potential “default” in the making.

DAILY OIL PRICE: August 7

  • Crude Oil: 41.22   (-0.73).
  • Nymex MTD AVG:  41.2278.
  • Natural Gas: 2.238   (+0.073).
  • Gasoline: 1.2076   (-0.0205).
  • Spreads: September/October   (-0.27)   October/November   (-0.37).
  • Plains WTI Posting: 37.75   (-0.75).
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