• October 26, 2020

ELAM: Stocks, oil put in short term top - Odessa American: Dennis Elam

ELAM: Stocks, oil put in short term top

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Posted: Sunday, July 19, 2020 5:00 am

Energy and Energy service firms are forever expanding at high oil prices and throwing in the towel laying off trained personnel, at low prices. Here we go again.

The fundamentals do not look good for oil prices. Shale producers are headed to Bankruptcy Court. Schlumberger and Halliburton are trading below 20 bucks. Oil prices literally went negative two months ago. Exxon Mobil is trading for 57% of its 52 week high. Domestic oil price seems blocked at the $40 level.

AOC is the architect of Biden’s $2 Trillion (not a misprint) climate change policy. They promise to eliminate coal and natural gas as fuels in the next fifteen years. This handily ignores the reality that the sun does not shine at night (solar), nor does the wind blow all the time (wind). But this is what happens when you put a former bartender turned progressive socialist in charge of your energy policy. She turned down 25,000 Amazon jobs for her home district. Now she’s trying to wreck your and my economy.

My conclusion therefore is that oil prices will continue a slow upward trek over the next 20 months. Why you say would I reach that conclusion?

The sheer negative mood against oil is one reason. Fundamental reasons are the near 50% rise inn copper rises since the March 23 low. Copper has risen from $2 to $3 since March. Copper is such a reliable economic indicator it is referred to as Dr. Copper.

All the news is negative on China. Hong Kong demonstrations, battles with India, Uygher put down, and the virus are the short list of problems. But a property boom has broken out. A WSJ article describes it as a $52 Trillion boom, bigger than the US real estate boom of the early 2000s. Yes we know how that ended.

And Chinese stocks have taken off. The Shanghai Index has raced from 2,700 at the March low to at 3,450 this week, it is down 5% today. An expansion of the Chinese economy should be good for oil prices.

The US seems to be experiencing resistance in the DJIA at 27,000. A 150 point rally this morning has faded to slight negative. A pullback towards late July or early August seems in order.

I am watching Cullen Frost, CFR, Valero VLO, Dividend DIV, and the Energy ETF XLE. Dividend payouts in that order are 3.9%, 6.9%, 11.5%, and 11%. With XLE one owns multiple international oils, not just one. A drop in stock prices would slightly raise those yields.

A pullback into late July should lead to a nice rally in August, this is a seasonal feature of the markets. Exercise patience the next few weeks.

DAILY OIL PRICE: October 16

  • Crude Oil: 40.88   (-0.08).
  • Nymex MTD AVG:  39.8317.
  • Natural Gas: 2.773   (-0.002).
  • Gasoline: 1.1688   (-0.0112).
  • Spreads: November/December   (-0.24)   December/January   (-0.30).
  • Plains WTI Posting: 37.25   (-0.25).
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