Week 26 ended with most market moving action taking place over the weekend at the G20 meeting. The usual rubbing of shoulders took place as Saudi’s shook hands with Russians, Chinese shook hands with Trump and Trump shook hands with North Korea. Lots of hand shaking but the truth is that’s all its been for months and months now. OPEC+ confirmed another 9 month extension which brings the cut in production levels towards its 3rd year. How many years need to pass before the ‘reduced quota’ becomes the norm? The reality is, the cuts have helped but they haven’t boosted Oil prices past $70pb which is where the Saudi’s desperately need pricing ahead of their planned Saudi Aramco IPO. The latter has been postponed several times now and keeps the likes of JPM and Goldman Sachs champing at the bit. But there is talk now that it’s back on the table.
Elsewhere in the world of US oil production (on another planet), data releases continue to defy belief. One week numbers are inline or as expected and the next a sudden 12m+ Draw arrives. It’s as if they thought they would fiddle around for a month delivering Build numbers week upon week before finally being forced to tidy up the book and slip all the Draws into one release. Investors would be wise to ignore the weekly reports and concentrate on the monthly data. Investors should also pay attention to the US production figures which were at 12.3mboepd a few weeks ago delivering significant growth from last years 10.9mboepd. But look a little closer and you’ll see that US Production has been falling. Last weeks data showed US Production falling to 12.1mboepd. This brings growth to a standstill. The last time US production was breaking 12.1mboepd was end of Feb 2019. A quarter of 2019 has past and US Production has gone no where fast. This may change, but after the significant growth phase through 2018, growth has become sluggish at best. This correlates with US rig count data which shows a significant drop in rigs over the last quarter. With OPEC+ Supply cuts set for another 9months, there’s not much room in the market for further drops in US Production. With Brent trading at $62.5pb, that’s asking for trouble if the market is net short. Do not be surprised if you see Oil prices head past $75pb (Brent) in Q3. There’s certainly not much of an argument for Oil prices to be lower than $60pb (Brent) especially with US Fed rate cuts anticipated around the corner.
Week 26 Review: The Independent and Guardian top picks continue to bat it out. Markets are at all time highs yet many stocks still seem sluggish especially across commodities. When the sun shines, risk assets become less attractive and money tends to flood to safer havens like Gold. That said, due to unattractive Bond yields, money is being forced into some riskier trades with crypto’s back in vogue. Crypto’s v Bonds? It’s like Nick Kyrgios v Tim Henman.
TheShareHUB picks are still flatlining awaiting key summer drill catalysts to get the juices flowing. Stocks like MATD, CERP and AMER are all expected to drill potentially transformational wells this summer. TheShareHUB’s recent heads up pick I3 Energy (I3E) is also another hot summer pick with 3 key drills planned over a busy 90 day period starting with the first well due to spud end of July or early August. Finally, watch out for PetraDiamonds Full year results due out in 3rd week of July. The stock has struggled to regain some impetus and momentum since completing their refinancing/rights issue last year at 41p a share. Trading today at 19.2p, the stock is a significant distance from Goldman’s Sach’s recent Buy rec and Target of 32p. In June, the CEO bought stock at 21p which was seen as a strong signal ahead of July results. The small sized diamond market has been under pressure from oversupply and lower pricing but Petra is a little different in that they have moved away from smaller diamonds and have targeted the larger sized stones and had recent success with some whoppers this year. Whilst largely historic, results will put a line under 2018/2019 trading year and the market will be keen to see guidance for 2019/2020 outlined from the new CEO with a view on reducing debt being top of the priority list.
Roll on next week.