As Transocean RIG trades for 22 percent of book value while making money and Frontline FRO trades for 72 percentof book value while making money, social mood towards the falling oil price changed this past week.
As Transocean RIG trades for 22 percent of book value while making money and Frontline FRO trades for 72 percentof book value while making money, social mood towards the falling oil price changed this past week. As I write Thursday Morning July 20, West Texas Intermediate WTIC is trading at $47.40. A daily close over $47.32 is need to turn the trend up.
We don’t usually make specific recommendations in this column but the two companies just mentioned bear watching. Both recently bounced off multi-year lows. It would be impossible to construct the off shore drilling capacity of Transocean, this is the moat that Warren Buffet likes to see when he invests in a company. Which makes duplicating the balance sheet near impossible for another firm. RIG does not pay a dividend. Frontline is a shipper, the world’s fourth largest tanker company. Its current dividend at this price is 9.69 percent. If a firm trading below book value, and earning money is not a buy, I don’t know what is. Did I mention over 50 percent of the shares are controlled by its Norwegian billionaire owner? I doubt he will cut his dividend payment.
Oil prices have been creeping up since my last column. As we technicians like to say, there is always a fundamental event to validate the technical picture. That event occurred yesterday. The US Energy Administration announced that inventories of US crude oil and natural gas stockpiles dropped by 4.4 million barrels to 231.2 million barrels.
The prices of some of our bell weather stocks jumped nicely validating the feeling that oil prices are bottoming. Previously mentioned RIG jumped 6.47% Wednesday. Apache APA popped 5.1%. Frontline FRO has risen from its multi-year low of $5.40 in early June to $6.40. The oil and gas energy service ETF of XES, another bell weather particularly for the Permian Basin, rose 5.07 percent Thursday And the best Texas bell weather for energy service is Patterson PTEN which jumped 6.33 percent Thursday.
No doubt many speculators were short all many of the companies just mentioned. Those speculators had borrowed shares and sold them betting on lower prices. But to take profits on the decline to date, short sellers must buy back the previously sold shares. The rush to do so is the reasons behind big jumps in one day such as those cited above.
Natural gas futures bottomed July 5 falling from $3.02 to $2.84. Since then prices have risen to close at $3.07 yesterday. So negative mood has turned in that market as well.
As noted this is written a day in advance of our usual Friday submission. But if crude closes Friday afternoon over $47.32, we believe the low in prices has been seen.
Meanwhile Corpus Christi is seeing yet another mega-export project get underway. San Antonio based Howard Energy begins building a $150 million storage facility as an entry point to Mexico and for export markets. It will take five years to complete the project. The final result will add an additional 1.6 million barrels of crude oil storage.
The Port of Corpus Christi is spending $50 million on a new dock. That will accommodate a Suezmax class oil tanker holding up to one million barrels of oil. That should help our positive balance of trade.
On a final note, it is inaccurate to say that 22 million will lose their insurance had the Senate bill passed. What would happen is that that many would lose Medicaid, which is a welfare, not an insurance program by any stretch. Medicaid is a Great Society program that simply pays medical bills for the poor. An insurance program on the other hand, is a pooling of voluntary payments to provide individual protection against a catastrophic event. Is no one on the Republican side capable of making this point? Well, put a better way, is no one on the Republican side capable, period?
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