Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Oil Prices

The price of oil is usually measured on a per-barrel basis. The price also can be quoted as the spot price, which is the price of buying a barrel at the current moment, or as the futures price, which is the cost of buying a barrel of oil in future months. Two main contracts traded are West Texas Intermediate (WTI) and Brent Crude. WTI oil is light sweet oil and very well suited for gasoline. Brent Crude is a blend of oil from the North Sea. Futures prices are quoted in increments of 1,000 barrels of oil for every one contract.

My Top Value Play in Bakken Oil

By for Profit Confidential

Top Value Play in Bakken OilThe weakness in oil prices was pretty sudden and has changed the financial dynamics for many producers. Typically, weaker oil prices are slow to translate into lower prices at the pumps.

Domestic junior oil stocks have been hot commodities until recently. Many of the market’s best growth stocks in this sector continue to be expensively priced and finding value has been a difficult endeavor.

One company we’ve considered before in these pages is Northern Oil and Gas, Inc. (NOG). (See “My Favorite Bakken Oil Play.”) This outfit is based in Minnesota and operates in North Dakota and Montana. The stock is not expensively priced, and the company is back online with solid sequential growth in production.

Northern has experienced infrastructure problems and weather-related issues that have hampered well completions, but the company’s latest quarter was a big success and full-year 2014 production guidance was upgraded to between 20% and 25% growth over 2013, compared to previous guidance of 15%.

According to Northern, its 2014 second-quarter production grew 17% sequentially and 41% year-over-year to 1.4 million barrels of oil equivalent (boe), averaging 15,369 boe per day.

The company’s total oil and gas sales in the second quarter of 2014 increased dramatically to $121 million, compared to $80.0 million in the second quarter of 2013.

But management incurred a significant loss on the mark-to-market of a derivative instrument and on the settlement of a derivative instrument, which resulted in actual second-quarter revenues being knocked down to $74.6 million, compared to $96.0 million in the second quarter of 2013.

As a result of the derivative loss (perhaps the reason why the … Read More

Why Are Oil Prices Collapsing?

By for Profit Confidential

Global Economy Just Getting WeakerOil plays a critical role in economic growth as oil is used in a variety of industries. In times of economic growth, oil prices rise. When the economy is soft, or getting soft, oil prices fall as demand for oil wanes.

Over the past two months, oil prices have collapsed for the simple reason that the global economy is getting weak.

The chart below shows the steep sell-off in oil prices that started in mid-June.

Light Crude Oil-Spot Price ChartChart courtesy of www.StockCharts.com

What’s interesting to note is that oil prices are falling at a time when we have numerous troubling events in the Middle East and Russia. In normal circumstances, these developments would have caused oil prices to soar.

One more chart I want to show you today (which continues to spell trouble ahead for the global economy) is the Baltic Dry Index (BDI). Since the beginning of the year, this indicator of global economic activity has been collapsing.

Baltic Dry Index ChartChart courtesy of www.StockCharts.com

Since January, the BDI has fallen 45%. The BDI is an indicator of trade in the global economy; the less trade in the world, the weaker the global economy.

Over the past few months, the chances of the global economy witnessing an economic slowdown have risen significantly.

As I have been writing, the eurozone is in very deep economic trouble again. Japan, the third-biggest hub in the global economy, is begging for growth. And the manufacturing and real estate sectors in the Chinese economy are slowing at a staggering rate.

The continued growth of the global economy is critical for the U.S. economy. In 2012, 46.6% of the S&P 500 … Read More

Big Growth Ahead for These Three Shale Oil Plays

By for Profit Confidential

Three Shale Oil Plays with Good UpsideI was listening to hedge fund guru and energy baron T. Boone Pickens on CNBC the other day and, as he always has, he wants to stop the flow of OPEC (Organization of the Petroleum Exporting Countries) oil into this country. This, folks, is not fiction; it is actually realistic, given the surging production of domestic shale oil and natural gas. Pickens wants to create a North American energy partnership through which the United States would align with Mexico and Canada to develop an energy conglomerate.

In my view, this makes sense, and it could perhaps drive oil prices lower, which could create a buying opportunity for investors (albeit I doubt the big oil companies would want such a thing to happen).

The oil patch is driving riches from Texas to North Dakota and Montana. The price of West Texas Intermediate (WTI) crude is holding above $100.00 per barrel.

The key to energy independence will be the ability to drive shale oil production higher. Consider that in 2012, shale gas represented 39% of total natural gas production in the United States, making it the top shale oil producer worldwide, according to the Energy Information Administration (EIA). Canada came in second at 15%. The numbers are estimated to get even bigger and with this, I see a buying opportunity.

Even the “cartel” OPEC realizes the impact of shale oil on its operations. In a report undertaken by OPEC in 2013, the cartel estimates a decline in its market share as shale oil production rises. (Source: Lawler, A., “OPEC to lose market share to shale oil in 2014,” Yahoo! Finance web site, … Read More

Why It’s Not Too Late to Enter the Hot Oil Sector

By for Profit Confidential

Oil Sector Hot Here's How to Get in on the ProfitsThe spot price of oil is holding up and there are countless oil stocks pushing their highs.

If the 1990s were the decade for technology stocks, then the 2010s are the decade for independent oil producers.

While the largest integrated oil and gas companies are struggling to grow production, mid-tier, independent producers are filling the gap, and there are countless growth stories in the marketplace.

EOG Resources, Inc. (EOG) has been a top stock market performer and is likely to continue ticking higher. The company has net proven reserves of some 2,119 million barrels of oil equivalent, of which 94% is located in the United States.

Of the company’s total 2013 production, 88% came from the U.S. and Canada, representing a nine-percent gain over 2012.

First-quarter 2014 earnings were $661 million, compared to $495 million in the first quarter of 2013.

The company’s total crude oil and condensate production rose 42% over the comparable quarter last year, and management has significant hedges, locking in oil prices just under $100.00 a barrel. Approximately 30% of North American natural gas production is hedged for the remainder of 2014 at a weighted average price of $4.55 per million British thermal units (MMBtu).

The Street expects EOG Resources to grow its revenues by about 17% this year and about seven percent in 2015.

Previously in these pages, we looked at Cimarex Energy Co. (XEC), which has been very strong on the stock market since the beginning of February. (See “Where to Find the Best Price Momentum Right Now.”)

This oil and gas growth story is slowing, but the company is still expected … Read More

The Top Risk-Capital Sector for Speculators Right Now

By for Profit Confidential

Risk-Capital Investors Should  Looking MarketDespite pent-up expectations, more reasonable pricing has returned to junior energy companies.

Earnings have caught up to share prices, and while sentiment for more speculative stocks has diminished in recent months, there’s almost some value in fast-growing oil and gas producers.

Of course, institutional investors are especially fickle and will jump ship on slowing growth. But the domestic energy boom still has legs, even in the most popular basins, and it’s as good a sector as any for speculative investors to be looking.

Kodiak Oil & Gas Corp. (KOG) is a Bakken oil producer we’ve looked at a number of times in these pages. This growing energy producer operates in two Rocky Mountain basins: the Williston Basin of North Dakota and Montana, and the Green River Basin of Wyoming and Colorado.

At the company’s operation in the Williston Basin, oil is produced from multiple zones, including the Bakken shale, Mission Canyon, and Red River formations. In Wyoming, Kodiak’s asset is in the Vermillion Basin, where it targets deep, over-pressured, tight gas sands and shales.

Kodiak’s share price is about a point-and-a-half below its all-time high. It’s still a growth story and the position remains highly liquid.

The company’s 2014 first-quarter oil and gas sales soared to $257 million, up from $165 million comparatively, on 3.1 million barrels of oil sold, which represents a 57% quarter-over-quarter gain in equivalent sales volume.

Earnings were $29.1 million, or $0.11 per diluted share, up from earnings of $19.4 million, or $0.07 per diluted share.

Like many other producers operating in North Dakota and Montana, a tough winter meant a sequential quarterly decline in oil … Read More

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