The recent dip in oil prices is tied directly to the global realization that the United States has a dysfunctional federal government. I don't care if your politics are Left, Right or right down the middle. The circus that went on in Washington over the last couple weeks has got to shake your foundation a bit. The fundamentals for oil have not changed. Demand for oil (especially the good stuff) is getting dangerously close to global production capacity.
As I have posted in my Energy Prospectus newsletters many times, there is significant support for the price of oil at $90/bbl. I believe that oil will flop around in the $90s until after Labor Day, then begin a steady climb that pushes West Texas Intermediate (WTI) over $110/bbl and maybe as high as $120/bbl by year-end.
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The price of Brent and Louisiana Sweet will continue to trade at a significant premium to WTI due to the physical bottleneck at Cushing, Oklahoma. I expect the premium will expand once Europe eats up all the refined products that they released from their strategic reserves. It will all be burned up by Labor Day.
As long as Libya oil stays off-line, which is going to be a long time, there is going to be a global shortage of light sweet crude.
Six of my Top Picks report 2nd quarter results August 4.
- Continental Resources Inc. (CLR)
- Denbury Resources Inc. (DNR)
- Gulfport Energy Corp. (GPOR)
- Petrominerales Ltd. (PMG.TSX)
- Plains Exploration & Production Company (PXP)
- Cimarex Energy Co. (XEC)
I'm most eager to see Denbury Resources (DNR) and Gulfport Energy (GPOR) since they sell a lot of oil into the Gulf Coast market at a HUGE premium to the WTI price you see quoted each day. GPOR is also going to have some very bullish things to say about the Utica Shale. For those of you living in Ohio and Michigan, the Utica Shale is going to be great news for your troubled economies. You may learn to love oil & natural gas like we do in Texas.
Oil looks like it will open about 50 cents per bbl higher in the morning. There appears to be some support just under $92/bbl and STRONG support at $90.
Hang tough, the fundamentals for oil still look very strong.
Disclosure: I am long all of the stocks mentioned above.
Denbury Resources Inc. (DNR)
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