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.

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

How Past Investment Trends Predicted This Stock Market Action

By for Profit Confidential

Speculative Fervor Declines on Growing RiskIt’s just the same old story with stocks. One day they’re up; the next day they’re not.

If 2013 was a breakout year from the previous long-run recovery cycle, 2014 is a year of choppiness.

Stocks just can’t seem to latch onto any particular trend. A convolution of influences from earnings results to geopolitical events continue to beat down what positive sentiment sprouts from the data.

It’s no surprise to have choppy capital markets after such a strong year of capital gains. And that’s the thing I always try to keep in the back of my mind: stocks are about the future—a future stream of earnings discounted for every potential eventuality at prevailing rates of interest.

With downside leadership in equities provided by the high-valuation large-cap technology stocks, it’s difficult to imagine the main market indices accelerating near-term, especially as the marketplace has already voted on this earnings season.

A familiar mantra coming from a lot of Wall Street analysts is that the pace of U.S. economic activity should accelerate towards the end of the year. Several firms are calling for stronger oil prices and lower gold prices accordingly.

But if the choppy action in stocks so far this year is any guide, things are unlikely to unfold as expected. And the catalyst for downside is unlikely to be due to corporate performance or the Federal Reserve. Companies are expecting to meet existing guidance, and the central bank continues to provide a stable low interest rate environment.

Geopolitical events unfolding between Russia and Ukraine are a growing risk for investors. A “sell in May and go away” type of … Read More

Business Conditions Soft? Not for These Two Companies

By for Profit Confidential

Strong Businesses Stock MarketIf business conditions are good for a public company, then it’s highly likely that its share price has already been doing well in this great monetary expansion.

With the stock market at a high, it’s tricky being a new buyer/speculator. As we’ve seen with biotechnology stocks, the price momentum can quite suddenly come to a halt.

One sector where there is more price momentum to be had is in oil. Not so much in the large, integrated oil companies but in domestic mid-tier producers as well as services. (See “My Top Energy Pick with Market-Defying Momentum.”)

In the large-cap space, Baker Hughes Incorporated (BHI) is now experiencing renewed momentum, both operationally and on the stock market. This oil and gas equipment and services company is seeing solid sales growth in North American operations as well as the Middle East.

In spite of unusually cold weather accounting for a drop in North America’s well count, the company was able to grow domestic first-quarter sales by 6.7% to $2.78 billion. Total sales for the first quarter grew 10% to $5.7 billion, while earnings grew 23% to $328 million.

Baker Hughes has been buying back a lot of its own shares (3.4 million in the first quarter), and the stock recently began a new uptrend. The company’s two-year stock chart is featured below:

Baker Hughes ChartChart courtesy of www.StockCharts.com

Halliburton Co. (HAL) is also experiencing renewed operational and price momentum on the stock market.

The largest oil and gas services company by revenue is Schlumberger Limited (SLB). Its first-quarter sales grew to $11.2 billion, up from $10.6 billion comparatively.

Diluted earnings per … Read More

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The Great Crash of 2014

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