2015 Hotlist Results – Week 01

  Week 01 of 2015

The first trading week officially got under way and includes Last weeks single day trading (Friday), so a 6 day week in all.

Straight off the bat markets got off to an ugly start as fears over Greece seemed to cause early jitters.  Oil continued its desire to plunge lower. After ending 2014 50% down at $57pb (Brent), the slide continued throughout the week and on Friday tested sub $50pb. There is plenty of chatter in the markets that Oil could continue its weakness all the way down to $20 although most suggest $35pb to $40pb ranges. Those familiar with ‘market talk’ may well translate the above as meaning Oil is heading for a bounce back soon. Placing Irony aside, there is a genuine possibility that Oil could test $40 or $35pb. Why? Because 9 times out ten the market always over corrects or overshoots. The Saudi’s may have taken a tough line on protecting market share – but you have to tip your hats to them. They know their stuff. Shale producers in the US are beginning to fall like flies. The market will indeed correct itself but only once these share producers are put out of business. Many of these companies rely on forward lending / debt to enable projects to begin. Regardless of whether Oil snaps back to $80 again or not… lenders and investors will be twice shy when entertaining any new Shale stories. The Saudi’s have effectively ripped the heart out of these producers and no bank in their right bank is going to fund a project which is essentially in the hands of 3rd party control.

So… how long does it take before the market realises that production and supplies is drying up? Well, it might take just 1 quarter. With Oil at $50 and potentially heading lower, it’s not only the Shale players that are getting zapped – it’s virtually the entire industry.

Next week Premier Oil, Tullow and Cairn to name a few are set to issue trading statements and ops updates. On Monday, many leading Oil companies and small caps are presenting at Macquarie’s Annual Oil conference. These are the first key events to happen since OPEC pulled the plug on the Oil price. The next few days will be very interesting reading for Oil&Gas followers. And there will be more updates the week after and the week after that. Whilst many companies have hedged future oil sales at much higher prices, the concern is not so much on cash flows incoming but cash flows outgoing. The market is braced for a huge reduction in capex. It’s not hard to see where this is headed. With future exploration and production plans being shelved – the market will soon start to panic on where the next oil supplies are coming from. And that’s when the Oil price will begin to snap back into higher ranges. But for many companies… by pushing projects back or even binning them, it could set the overall business back by years. Once a project has been shelved it can be quite tricky to get it back up and running especially if funding / banks are more risk adverse to the sector due to volatility/uncertainty. This is where alternative plans come into play. These can involve asset sales, JV’s or mergers or even predator like acquisitions. Consolidation kicks in as the bigger fish with large cash balances mop up the struggling debt laden minnows and mid tier players.

For some companies – it’s going to be a matter of praying for a short term oil dip and a swift bounce back to higher prices.

Anything longer term and that’s a big concern. Hence – the faster and sharper the Oil price fall potentially the better it is.  A slow death is far more painful than a short sharp jab or two.

The coming weeks and months leading up to March/April should provide the market and world with the data to determine the demand for Oil&Gas. By the time the Saudi’s hook up with their OPEC members in July, they may well decide to cut a few barrels to see if projects suddenly swing into action again. Or turn the taps on and take up the slack and market share again.

Either way – the Saudi’s are in full control.

The Dow closed week 01 down just 86 pts and closed at 17737. Earlier in the week the Index tested below 17300. The FTSE 100 closed down 65 pts at 6501.

A virtual portfolio has been set up using the 2014 final trading day close figures as a starting point and £1000 has been invested in each stock. This does not include buying fees or stamp duty and is purely intended to be used as a benchmark or summary for each week. One newspaper top ten picks for 2015 and one Broker Top Ten for 2015 picks have been included to help monitor/compare against.

Week 01 stock picks summary:

2015 sees the introduction of a broker top ten picks. The reigning champion ‘The Independent’ top ten picks is included again along with thesharehub’s Oil&Gas focussed Hotlist.

Considering the near 15% slide in Oil Prices since 2014 closed out, I was expecting more of a bloody nose when it came to the sharehub’s Oil&Gas picks. However, remarkably many sector players have traded up or sideways against the latest oil slide. For instance, Tullow was trading at 358p levels when the Oil Price was falling to the mid $60 levels. Today, Tullow’s sp is around 390p with Brent POO at $50pb. That’s a fall of almost 25% in the price of oil (POO) and a rise of almost 10% in Tullow’s SP.

So what’s going on there then? Over shoot on the sp and a correction perhaps? Or is the market beginning to BUY these stocks ‘ahead’ of any potential Oil rises? The facts are … many Oil&Gas stocks are now rising or recovering against a continued fall in POO. That’s a trend that needs some attention over the coming days and weeks. It could hold the key to any impending POO bounce back.

Finally – the chart below shows Goldie boys view on where Oil is headed. That said – these boys are notorious for saying one thing publically and then the opposite happens. Retail investors are apparently ‘muppets’ according to some at Goldman’s. That says it all.oil-price-prediction-decmber-2012-june-2016

Current standings / Week 01 Results

1. Charles Stanley’s Broker Top Ten 2015 +0.20% (Weekly gain of 0.20%)
2. The Independent’s Top Ten 2015 -1.17% (Weekly loss of 1.17%)
3. TheShareHub’s 2015 O&G Hotlist -1.80% (Weekly loss of 1.80%)

Click on Portfolio image to enlarge:Charles Stanley Picks week 1Indie week 1TSH week 1