Another week of not so subtle ‘tip-toeing’ for the Major indices as they build higher in an attempt to return to previous highs. The DOW has put on almost 2000pts since the dip to 23500 just a week of so ago and not one fluffy overbloated headline from the normal media channels. It’s all gone a little quiet which is odd considering the ‘noise’ that delivered the first major correction to international markets in over 12months, has not gone away. The weak dollar has certainly put the focus back onto commodities. But as mentioned last week, the disconnect between commodity focused equities and major market indices continues to widen. For example, Tullow was priced at 230p+ levels the last time the DOW was at 25500pts. Today, Tullow is 189p. As a comparable PoO has not changed a great deal in the period. At some point that has to change but for now it seems commodity focused equities get hammered when the DOW gets hammered and conversely, when the DOW surges higher, commodities are slow to follow. In theory, we are approaching the best period in nearly 3 years for commodity focused stocks. Earnings should now show the benefits of higher PoO from the last 8 months+. We’ve already seen strong numbers delivered via Premier Oil and Enquest. Yet despite the good news, the stocks are continually left languishing, unwanted. The next few quarters look like much the same in terms of good news on earnings and debt reductions galore. It’s going to be hard for the market to ignore.
PoO continues to stabilise and it is a surprise that after recent Libya woes, the market is not pricing crude much higher. The US rig count is relatively static on a 9 month basis, and one look at the cushing stockpiles (see chart below) tells a better story than most US media channels would like you to hear.
US shale does not look the powerhouse that many are claiming and I think the Saudi’s and Russian’s are beginning to see through the smoke and mirrors. For months now, numbers have been skewed by the irregular reporting standards of the API and EIA. Blurred by the previous ‘floating storage tankers’ that seem to get docked at key times by Vitol and co. Now, the seascape is empty. There are no floating storage tankers, They’ve all been unloaded. This is dangerous ground for Oil traders. The Saudi’s and Russian’s are firmly back in control. Woes in South America combined with potential unrest in MENA region could see PoO spike into the $80’s in the coming months. It’s a fascinating watch and one that is a good old fashioned tug-of-war. US Shale is not going to go away but I don’t think it’s as strong as many suggest. With Trump adamant on boosting sanctions on Iranians in the not-too-distant future, it might not be long before the oil market finds another chunk of production removed from the markets.
Week 8 will have pleased many as it brought much calmer waters enabling investors to catch a breath. The 2 x newspaper picks recovered some losses and TheShareHub picks got to within £8 of positive ground.
A mixed performance from the ‘heads up’ stocks as MATD unsurprisingly powers higher ahead of what should be this summers hottest stock on AIM. Much more to come from that stock in the months ahead. Petra Diamonds, raced to 75p from 62p levels but soon sold off after a decent results update. Investors want the debt situation finalised and until that happens, all eyes will be on the disputed ‘sales parcel’ that has yet to hit PDL’s balance sheet.
SOLG.L after months of being in the doldrums appears to be showing signs of waking up again ahead of the next major phase of exploration and subsquent MRE upgrades. At 22p, it is trading 3p lower than the bought book placing deal and is 50% away where it was when it reported the maiden MRE in early Jan. The mind boggles. I would expect some common sense to return the stock to mid to late 20’s over the next few weeks assuming commodities and newsflow remains strong. No guarantees of course… and the usual risks/caveats apply.
Week 8 below: