US Attacks Oil Jumps

Friday Jan 3 2020

US Attacks, Oil Price Jumps 2.6%

 

The US preemptively struck the Baghdad airport killing Major General Qassim Soleinani. The US claimed he and his men were responsible for the deaths of American and coalition forces.

N Y Times Friday January 3, 202

 

Friday 1/3/2020 7:34 AM CST A student of social mood would note it was pretty obvious change was in the air. Day after day, CNBC and other business media outlets crowed that ‘markets had hit new highs.’ Apple, a phone manufacturer, hit $300. The S & P and NASD also hit new highs Thursday. Secretary Poompeo delayed a trip to the Ukraine given the attack on the US Embassy in Iraq.   Oil prices firmed over $60 as did shares of energy trusts.

 

This morning the 300 point rally in the DJIA Thursday has pretty much been erased with the DJIA retreating and now down 251. Likewise the S & P 9-33) and NASD

(-108)j gave back gains.

 

The last few months and weeks, this column has suggested that energy securities trading near the 2009 lows and offering fat dividends might be a better shopping venue than the sky high NASD which has been on a tear since the Trump election.

 

Energy ETF XLE has moved over $60 as has the price of West Texas Intermediate. The Energy Service XES has finally rallied from about $6.50 to $8.11.

 

Meanwhile there is news in the Permian Basin. Five new pipelines will come on line through 2021. Current output is about 4.72 million barrels per day. The new pipelines will allow for some 6 million bpd.   Will production overwhelm price? Perhaps that will not be the case.   Shale producers are cutting back on investment given high debt levels and frankly more oil than they could sell. Now declines in production from older wells are not being offset by the newer wells. This may bring production and supply more in line with demand. The $2.33 bump in price today   is yes a result of a ramping up of Mid-East tensions. But it is also a vote for stronger prices above $60. This is what we have been predicting price-wise, the fundamental events are simply confirming that.

 

Now what about the new lows in natural gas prices?   Today’s WSJ headline reads, Slump In Natural Gas Drags Into 2020. This is the same headline we read on oil prices this past summer. Price has fallen to $2.12. A weekly close over $2.29 will suggest a low is in place. Prices of gas producers like Devon are already rising.

 

It is tough to buy low as the social mood never argues for it. But, 2020 is looking bullish for the energy sector.