Oil heading for $65pb in September – second time lucky?

Back in 2015, the market predicted the oil glut would end sooner rather than later.

Just take a look at the below 2 year 2 year chartchart…

 

Note the move from Feb 2015 to May/June 2015. A $48pb to $66pb move based purely on the ‘recovery’ or ‘rebalancing’ being underway. Of course, this proved incorrect. The subsequent fall was brutal and during the period saw Saudi’s, Iraq and Russia all producing at top target levels. Flooding the market was an understatement.

But here we are again at $48pb range and some 18 months more advanced. If the market wanted to get excited in Feb 2015, then surely it will want to get excited heading into OPEC’s informal meet due for Sept 26th?

There are many reasons why OIL has struggled over the last 18months, but the main pointer is simply too much oil vs demand vs the pre-existing stored glut.

Should Iran, Iraq, Saudi’s and Russian’s agree a CAP or Freeze in late September, then finally the market has a marker from which to benchmark any ‘rebalancing’. At present it is impossible to determine when a rebalance will occur if the likes of Saudia Arabia and Russia keep adding an extra 1 or 2 million barrels per day. US shale hasn’t gone away and will come back but not like how it was before.

If the big countries agree a Freeze, then there’s more reasons to get excited again than in 2015 – that’s for sure.

Talk is talk, but my guess would be that an informal agreement will be pencilled in Sept with a formal agreement pen’d in the biannual meet in Dec. This would set up a bullish period for PoO heading into 2017.

One last pointer… traditionally the US market/PoO dips into Autumn as the summer gasoline burn dwindles and refineries get back to normal. The very fact that OPEC are getting verbal again perhaps suggests that they too know ‘action’ is needed (in some form) to avoid another casino style attack on PoO by speculators kicks in again. Of course, that may still happen but if the verbal banter carries through Sept, Oct and some of Nov, then by the time the December OPEC meeting arrives, most shorters will have been left shirtless… well, that’s my guess.

The market may have got ahead of itself 18 months ago when it zipped PoO back to $65pb, but second time around it may just get it about right.

As an example to contemplate… Premier Oil (PMO.L) tested 180p per share in the 2015 recovery rally. Today, just $16pb shy of the $66pb reached in May 2015, Premier Oil is priced at 71p a share.

There are quite a few stocks out there like Premier Oil that have disconnected further and harder during the last 18 months. Not all will return to 2015 levels, but the ones in better shape certainly should. Faroe, Ithaca, and Amerisur to name a few should all do very well ‘when’ PoO recovers.

Iran ready to talk freezes?

Iran signals more willingness for OPEC action to boost oil price

By Rania El Gamal and Alex Lawler | DUBAI/LONDON

Iran is sending positive signals that it may support joint action to prop up the oil market, sources in OPEC and the oil industry said, potentially aiding efforts to revive a global deal on freezing production levels at talks next month.

OPEC’s third-largest producer has been boosting output after the lifting of Western sanctions in January. Tehran refused to join a previous attempt this year by OPEC plus non-members such as Russia to stabilise production, and talks collapsed in April.

Though Iran has not yet decided whether to join a new effort, Tehran appears to be more willing to reach an understanding with other oil producers, the sources said.

Venezuelan Oil Minister Eulogio Del Pino last week toured oil-producing countries including Saudi Arabia and Iran to rally support for a deal. Despite rising this year, oil at around $49 a barrel is less than half its level of mid-2014.

“Iran is reaching its pre-sanctions production level soon and after that it can cooperate with the others,” said a source familiar with Iranian thinking after del Pino’s visit to Tehran.

“In general, Iran prefers more actions from the OPEC side rather than just freezing at the maximum production level of all members. If this freezing issue helps prices to improve, Iran by positive words of support, will help.”

Members of the Organization of the Petroleum Exporting Countries are due to meet informally in Algeria next month on the sidelines of the International Energy Forum. Russia is also expected to attend the IEF.

Venezuela, whose economy has been hit hard by the oil price collapse, has for months sought to rally producers towards an agreement to limit production. Del Pino was in Tehran on Aug. 15 before flying to Jeddah in Saudi Arabia.

Iran confirmed its participation in the OPEC meeting in Algeria, an OPEC source said on Tuesday.

‘POSITIVE SIGNS’

Russia, which in April was ready to freeze production, now wants to see an internal agreement among OPEC before it commits to rejoining an initiative.

“Negotiations are ongoing. I see positive signs coming from OPEC ‘majors’,” said a senior industry source familiar with the discussions, referring to Riyadh and Tehran.

“Russia wants to see an OPEC agreement before committing anything. So (OPEC members) are busy among themselves formulating an agreement.”

OPEC sources say Iran’s participation in a production pact has been the main stumbling block in reaching a deal.

The previous attempt to freeze output at January levels collapsed in April after Saudi Arabia said it wanted all producers, including Iran, to join the initiative.

Tehran insists it will be ready for joint action only once it regains pre-sanctions output of 4 million barrels per day (bpd). It pumped 3.6 million bpd in July, OPEC figures show.

But since the appointment of Khalid al-Falih as Saudi energy minister in April, Riyadh has taken a softer tone towards Iran at OPEC. The group is likely to revive freeze talks in September as Saudi Arabia appears to want higher prices.

Besides Iran, output levels in Nigeria and Libya could also complicate reaching a deal. While Saudi Arabia, Iran and Russia have reached record production since April, Nigeria’s hit its lowest in more than two decades due to attacks on oil sites. Libya is pumping a fraction of its pre-conflict rate.

“The difficult question for all will be defining the freeze – at what level of production. Agreeing a number may be a challenge – unless they all agree to allow some form of flexibility?” the senior industry source said.

An OPEC source from a main Middle East oil producer agreed.

“Freezing output now is difficult, everyone is raising production. And even if, and I am saying ‘if’ … we agreed to a freeze, no one will commit to stick to it,” the source said.

(Editing by Dale Hudson)

Kaz Minerals soars to Profit

Half year report is in this morning and Kaz Minerals have blown the market away. Part of thesharehub top ten picks for 2016 (added at 102.5p) the stock is trading up 10% on the news at 181p. Just another 24p to go to notch up another multibagger and join Hurricane, Glencore and Ithaca (all part of the sharehub top ten).

Spare a thought for poor old UBS. Some bright spark decided a short of 0.61% would be a good idea on KAZ in early August. Just 2 weeks later and KAZ is trading some 20% higher.

Time will tell if that short position is a long term inspired move but surely a bit of governance would have suggested that it was better to ‘short’ the stock after results rather than before?

No wonder tax payers had to bail out these city boys. Some of their ‘bets’ have been nothing short of school boy stuff. But let us be fair… 0.61% is moderate and a country mile away from the likes of ODEY who have a short open on Tullow at around 4.5%! The latter announced first all at TEN Field this morning which is another major project derisked. (Tullow is also part of the sharehub top ten).

With the commodity sector set to rebound further (the sharehub firmly believes in that and so do a few decent and smart analysts) KAZ should make the multibagger status with ease. The only question UBS need to answer is will it be a 1 x multibag or 2? If it’s the latter, it might be a good time to close those shorts. What are you waiting for?

Q3 Hotlist results and summary will be posted at end of September. At present the top ten picks are up a whopping 58%+.

AMER and QUADRISE – Stocks to watch

Amerisur Resources currently 27.75p look to traded sideways against a rising market leaving it lagging by a decent 20%+.

The company is due to update in September (assuming last calendar year is a guide) and should have news on pipeline progress and an update on the recent development well campaign in Colombia.

The market seems reluctant to buy into the AMER story and larger II’s are already burping a little after the late spring 25p placing feast.

The pipeline is the game-changer and one would expect the company has contracts and deals in place ‘ready’ to go once the pipeline is finally completed. The pipeline has a capacity of around 50kbopd. AMER’s current production sits at around 5k to 7k with potential to move to 10k. There is potentially $10pb+ savings in pipeline vs conventional trucking, so AMER should seek to either buy in additional oil or do partner deals.

If September is the big news month, and market conditions are in good health, then a rise back into the mid 30’s would just about place AMER on ‘par’ with other stock recoveries in the sector. Add the ‘news’ factor in and the stock could rise to test some lofty broker targets currently near 45p.

AMER is part of thesharehub top ten picks for 2016.

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Next up is Quadrise (QFI) currently trading at 12p per share. This was once a popular stock trading at near 40p+ just 2 years ago.

For those that don’t know much about Quadrise:

“Quadrise International Limited (QIL) is a wholly-owned subsidiary of QFI through which the MSAR® emulsion fuel oil business is managed. The QIL team of specialists have extensive experience in commercialising oil-in-water emulsion fuels (including Orimulsion®), and downstream and utility projects that is unmatched at a global level.

The purpose of MSAR® technology is not only to render heavy hydrocarbons easier to use by producing a low viscosity fuel oil using water instead of expensive oil-based diluents, but also to produce a superior fuel with enhanced combustion features. MSAR® technology is a game-changer for oil refiners as it frees up valuable distillates traditionally used for HFO manufacture, providing a viable alternative process for handling the bottom of the crude oil barrel without significant expenditure – thereby increasing profitability.” END.

Obviously, a higher oil price works in QFI’s favour so it’s easy to see why this one got hammered when PoO dropped into the low 30’s. But assuming the rebalance takes place in PoO, QFI are well advanced and ready to capitalise via several partner deals. One MOU with a Saudi group (released a week ago) puts the company back on the map and at 12p, it wouldn’t take much to see the stock return back to levels seen last year – circa 21p range.

The company is due to update the market in September with a half yearly update (assuming last year was a benchmark) and it would not surprise me to see QFI head back towards the high teens over the coming months. 2017 is set to be their first year for decent revenues and if the cash rolls in as hoped, then it could justify 40p+ again. Lots of if’s and but’s of course but this one is priced near bottom and has yet to join in the sector /PoO recovery.

Quadrise is not part of thesharehub top ten picks for 2016 but it’s a good contender for the 2017 hotlist.

Ithaca Energy impresses again

Ithaca Energy released second quarter results this morning and they are very impressive.

Ithaca are a rare breed – a quality North Sea focused stock. The company hedging position has delivered yoy. Ithaca had the foresight back in 2014 to hedge a considerable amount of production at prices near $70pb dropping to $60pb in late 2016. They still have around 9kboepd hedged at prices near $59 which will see them through to mid 2017.

The large Stella field development has been ongoing for the last 4 years and in early August, the FPF-1 was released from Poland with an ETA around about now. It marks the beginning of a new era for Ithaca. They have for some years run steady production numbers of around 10kboepd. When first oil flows from Stella, the company’s net interest equates to around 16kboepd. Add to current production and the guidance for 2017 looks to be around 20kboepd to 25kboepd. That’s a huge step up in volume and with the market showing signs of rebalancing, they may have timed Stella first oil perfectly… just like they timed their hedges… pretty spot on.

OPEX is dropping and the company has suggested a figure of around $20pb for 2017. That’s some serious cost cutting and smart planning there. OPEC used to be nearer $37pb. They’ve virtually halved it over the last 2 years.

Debt is reducing inline with debt schedule and currently stands at $606million.

The company has increased its production interests in some of the other producing licences and are looking at making more acquisitions in and around the Stella hub area (GSA). Recent news on linking into a shared pipeline should not be underestimated. That’s big news for 2017 when the tie in is schedule to take place and complete.

Earnings in 2017 (assuming the high end number of 25kboepd) based on an average PoO price of $55pb equates to just shy of half a billion ($500mil). If they can keep capex down and opex steady at $20pb, they could pay down $200mil+ of debt in 2017. Some analysts are predicting PoO at $60pb in 2017 and it is easy to see prices overshoot into the mid $60’spb if the rebalancing is brought forward due to OPEC action such as FREEZES.

It’s been an excellent performance by Ithaca over the last 3 years (although some Stella delays to consider in there too – which are now well forgotten) and a lesson to all oil companies out there. The hedges and steady production has seen them deliver almost identical figures for 2016 compared to 2015 yet this is against a much lower PoO price (2016) level and hefty CAPEX/OPEX costs through the Stella Development stages.

In under 3 months time, Ithaca will be a very different company and with over $1.6billion in tax allowances, they will be reaping it in over the next 3 years.

Ithaca is part of thesharehub top ten for 2016. It has already multibagged and is one of the best performing stocks in the hotlist.

Current market = £285million. That’s very cheap considering they have potential to notch up $500mil in earnings next year (regardless of their debt). £400million mkt cap would still look cheap in my opinion.

ShareHub target price is upgraded to 115p (from 112p), presenting a potential 80%+ upside to Friday’s closing price of 64.5p

Is it time ‘shorters’ made a dash for it..?

Time to close shortsFirst of all – Let us be clear. There is no room for complacency in today’s markets. Things move fast and you have to constantly adjust your views on the pro’s and con’s of the market backdrop and which sectors will underperform or outperform.

In early Feb 2016, WTI crude hit a low of $26pb. Today, it’s trading near $43pb. In comparison to this recovery, lets take some examples like Tullow Oil and Glencore. In the same period, Tullow has risen from 120p lows to test 220p today. It had been higher at 260p+ not long ago but dipped due to a recent convertible bond issue with a VWAP strike of approx 220p a share. Debt holders usually take out some arbitrage in the form of short equity trades so it is of no surprise to see Tullow’s short coverage rise. As of today, significant short positions can be seen below (above 0.5%):

Fund manager % short Change Date changed/created
AHL Partners LLP 0.61% ↑ 0.10% 2016-08-04
Citadel Europe LLP 0.50% 2016-07-08
Highbridge Capital Management LLC 0.60% 2016-07-06
Key Group Holdings (Cayman), Ltd 0.83% ↑ 0.20% 2016-08-04
Lansdowne Partners (UK) LLP 2.81% ↑ 0.07% 2016-06-22
Linden Advisors LP 0.60% ↑ 0.05% 2016-07-18
ODEY ASSET MANAGEMENT LLP 4.80% ↑ 0.08% 2016-08-04
Oxford Asset Management 0.81% ↑ 0.11% 2016-07-28
Systematica Investments Limited 0.50% ↑ 0.01% 2016-08-02

Total = 12%+

The highest short coverage on Tullow seen for months. Many of these ‘punters’ have been shorting Tullow when the share price was significantly below 150p. Many are seriously underwater. An example of how ‘shorting’ can be dangerous and particularly painful is ‘Glencore’. The latter had significant short coverage in place when the stock dipped to 77p earlier in Feb when the market (or hedge funds) were spinning dark gloomy stories via their usual press outlets like YahooFinance, CNN Money, FT… the list goes on. A few months later and Glencore is trading at 195p. Many hedge funds had their guts ripped out and strung up. Losses were huge. We are talking about a £17 billion swing in value from lows. Something to make the great VW porsche story look like a tea party.

The commodity sector is a long way from being out of the woods but the majority of analysts that were forecasting carnage in early Feb are now forecasting brighter days ahead in Q3/Q4.

So what’s left for the shorters? What are the likes of ODEY Asset Management waiting for? Recently PoO dipped to $40pb after hitting $53pb on the road to recovery. Odey could have closed some short exposure but elected not to. Strange to say the least.

OPEC are due to meet ‘informally’ (when is a formal meeting informal and when is an informal meeting actually formal?) to discuss the possibility of a FREEZE on output levels. It could just be banter again but what if something comes out of it which then continues to rumble through to the ‘formal’ OPEC meeting planned for DEC 16?

Placing Tullow and Glencore aside, many other stocks out there have heavy shorting exposure. It’s not unusual to speculate when ‘things’ look dire for the sector. But at what time do you call it a day? At what time do you decide that PoO and other commodities may well be on the road to recovery. A rebalancing promised years ago (2+ now) actually starts to happen.

At some point, some of the short players are going to have to call it a day. Many have already but large numbers still remain. The trade designed to profit and hedge in bear market conditions eventually has to turn into a bullish long trade.

When that time comes, I believe there is going to be one mother of a stampede for the doors.

You can keep an eye on short exposure via the follow site: If you feel optimistic about the future, then you’ll know who to squeeze first!

http://www.shorttracker.co.uk/