Sharehub Hotlist 2017 – Week 24

The sun is shining, summer is here and Major indices are at all time highs. All is well in global markets which is a little strange when you actually start to look at the economic data that drives major indices. The US data has steadily turned from bullish to fast becoming bearish. The Fed Reserve seem desperate to get rates up as fast as possible simply so they can ‘perhaps’ reduce them in a year or two again. The UK is in one of the most uncertain periods in its history. Retail sales are shoddy, big ticket items gone missing on shoppers lists and all points to a tightening of belts based on uncertainty – not good for the economy and that’s ontop of the ‘limbo’ that British businesses face over the next 18 months of Brexit negotiations. Yet, as highlighted above, stock markets are at all time highs. Anyone remember 2007/2008? Has the market learned anything? Well, that’s the wider market environment covered – now what about commodities? Well, in uncertain times you would normally expect GOLD to be soaring. But with stock markets at highs, that uncertainty is not being felt just yet. But I suspect when the sell off comes (and it will) GOLD will indeed soar higher. That bodes well for gold producers and sharehub’s Hummingbird Resources is in the top ten for that precise reason. Call it a hedge against uncertainty. On to PoO… well, the Saudi’s and Russian’s clearly see no benefit in supporting PoO with the usual verbals at a time when PoO is in a down month. The end of Q2 is always a poor period for oil with Q3 onwards picking up considerably due to US driving/holiday season. I think the Saudi’s will prefer to wait until July is out to see what the API/EIA data is like before cutting deeper or extending beyond March 2018. The market is currently quite narrow sighted in terms of PoO. Concentrating on US production numbers as a key driver is a recipe for disaster. While the US bucks the trend with strong production numbers, other countries – mainly in South America are seeing production numbers fall off a cliff. This is the natural decline or loss of market share that the Saudi’s have fought for over the last 2 years. It’s not just US production that matters, it’s global production.

Finally, one data set that seesm to have been ignored is the US rig counts. The last time US production was over 9.3mbopd the rig count was close to 1850 rigs. Currently, rigs are running at approx 950, that’s almost half. That suggests that many of the fields are producing from Wells drilled sometime ago. These wells are likely to dry up soon and new wells will be required. That’s the costly part. And that’s where US shale begins to struggle with prices at $50pb. US shale is relatively new so it is a little tricky to define the phases whereby fields decline and new wells are required. For instance, a rise in the rig count could be an indicator of dropping supplies rather than a bullish market as field owners are forced to drill news wells to keep revenue running to pay off debt. US shale will take a decent 1 to 2 years to show the true signs of what is going on. It would not surprise me one bit to see US production numbers begin to drop as we head into Q3. That would bode well for PoO although don’t get too excited, I don’t think you’ll see $57pb broken for sometime yet. But a trip back to mid $50’s would be helpful to most producers.

Week 24 results below:

Telegraph stretches out a lead over Daily Mail and Sharehub picks waiting for a few catalysts to unfold incoming weeks before hopefully making a strong recovery. FUM looks back in favour and Delek’s top up on FPM is a reminder to all Oil focused investors that oil is still very much in demand. All eyes on PVR’s icemax stena rig which should be leaving Gran Canaria in the next couple of weeks or so.

Leave a Reply

Your email address will not be published. Required fields are marked *