Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Biggest Myth About Investing in Crude Oil Right Now

Commodities / Oil Companies Jun 18, 2015 - 03:35 PM GMT

By: Investment_U

Commodities

Matthew Carr writes: I’m not often bearish. It’s not really in my nature. And it certainly doesn’t fit in my philosophies of “don’t panic” and “you can always find opportunities (regardless of which way the broad market is moving).”

There are ways to make money in any situation.

That said, in April 2013 I did give a warning about the energy sector. My exact words:


“The days of $100-a-barrel crude are winding down (barring some major supply chain disaster). U.S. stockpiles of crude are at multidecade highs. Stockpiles are more than 4% higher compared to this time last year - and the five-year average was already way out of whack.”

I was a little early, as prices didn’t come crashing down until 14 months later. But here we are...

And now that everyone has fled the crude markets, I’m seeing plenty of opportunities. In fact, as The Oxford Club’s trends expert, I think this could be the biggest emerging trend I’ve covered in recent months.

You see, unbeknownst to many, there have been lots of big returns in the energy sector this year. I’m not talking safe havens like tankers and MLPs, either...

At the Bottom of the Long Way Down

If you follow the energy sector, you probably know that every Friday afternoon, Baker Hughes (NYSE: BHI) releases weekly rig counts for North America and monthly international activity.

Everyone focuses on the headline number, but... we get it. Rig counts are down.

Over the past year, the North American rig count has fallen 53%. In the United States, specifically, the rig count is down a little more - 53.67%.

At the same time, however, not a lot of press is given to the fact that working rigs in the U.S. peaked more than three years ago - in October 2011.

It’s been declining ever since, except for a couple of really active areas.

The problem is the ever-changing mix of natural gas and oil.

In recent years, the vast majority of rigs shifted to oil. It’s happened several times before, and it’ll happen plenty of times again.

When the industry focuses on just one side, there’s an implosion. Supply outstrips demand and we have a cascading collapse.

But, obviously, not everything is created equal. Right now, some basins are getting hit harder than others. While some basins are seeing their rig counts increase.

Seven fields in the United States - the Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica - account for 95% of all growth in domestic oil and gas production.

And these are the plays - particularly the Permian - that account for the massive drop in rig counts.

A Dramatic Shift... and a Host of Outperformers

If we look at the working rigs by comparable activity, the picture is a little more interesting...

Here, we see counts at the Haynesville and Marcellus have been on a decline since 2011 and 2012. The Eagle Ford activity peaked in early 2012 and was largely flat. And the Williston (part of the Bakken) saw a steady flow of activity.

The Permian has had the most dramatic shift. As you can see, it continued to add working rigs until November 2014.

By the end of October 2014, the Permian accounted for 29.5% of all onshore working rigs.

As of last week, Permian activity represented 27% of active rigs. And of the 1,069 rigs taken offline since October 2014, the Permian losses were 336, or 31.4% of that total.

iuox.display(71);

At the moment, new Permian activity is at its lowest point since 2010. But it does produce the most crude of any basin in the U.S.

A lot of people have been negative on oil producers this year. With crude prices so low, energy investors have generally focused on refiners, tankers and pipelines.

But the thing is, just because rig counts are going down... that doesn’t mean oil companies’ shares will follow.

Let’s look at a year-to-date chart on Permian operators...

Not only did this group - Matador Resources (Nasdaq: MTDR), RSP Permian (Nasdaq: RSPP), Laredo Petroleum (NYSE: LPI), Concho Resources (NYSE: CXO) and Whiting Petroleum (NYSE: WLL) - largely destroy the performance of the energy sector...

It outperformed the broader markets as well.

RSP Permian is actually forecasting year-over-year revenue growth of 20%-plus. Laredo is expecting a decline of 18% (which is far below the industry average). Wall Street is anticipating a full-year decline in revenue for Matador of just 7.5%. And Concho Resources is projected to see revenue dip only 15.7%. Whiting, which is the worst performer so far, will likely see revenue fall 19%.

The standout here, obviously, is RSP Permian, which saw production increase 86% in the first quarter. The company deferred its well completions in the fourth quarter until costs stabilized. It also plans to accelerate drilling activity in the second half of 2015.

Where Skies Are Brighter

Despite the overall negative sentiment in energy, there are areas of growth.

Smaller plays, such as the Cana-Woodford and the Ardmore Woodford, are seeing their rig counts increase.

Over the past year, the Cana-Woodford is seeing a 26.87% increase in activity. The Ardmore Woodford is seeing a 16.87% increase.

As you can see from the chart, the Cana-Woodford is down from 2011, but the activity wasn’t decimated like in other basins. And we actually see rig counts in the Granite Wash and Mississippian, after bottoming, are ticking higher.

Now, this is where digging into the data further - going beyond the headlines - is important

Continental Resources (NYSE: CLR) is the largest operator in the Cana-Woodford. Shares of Continental are up 22.4% this year. Meanwhile, competitor Newfield Exploration (NYSE: NFX) is up more than 35%. And Cimarex Energy (NYSE: XEC) is up more than 13%.

The declines in the broad energy sector have been capped and have slowed considerably, even as production continues to increase. But in no way does that mean investors have to abandon oil companies. It’s about being more selective.

Everyone is a genius in a bull market. But it’s in the bear markets that you start separating yourself from the pack. You must dig through the data to find opportunities.

Good investing,

Matt

Source: http://www.investmentu.com/article/detail/46040/baker-hughes-bhi-rig-counts-biggest-myth-about-oil-investing-now#.VYLxKE3bK0k

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in