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November 8, 2006

The Bull is bullish on energy, Wed., Nov. 8, 2006, 8:58 AM

Following the annual Merrill Lynch energy conference where 5 integrated, 16 exploration and production (E&P), 7 oilfield service, and 6 contract drilling companies presented, ML concludes their bullishness remains in the U.S.-based integrateds and a lengthy list of BUY-rated E&P companies.

ML says the conference themes were multifaceted and contradictory: (i) volatile N.A. natural gas pricing, (ii) DeepH20 (Miocene and Lower Tertiary (GOM) exploration potential, (iii) unconventional resources (CBM, TGS or shales), (iv) petroleum resource access issues, (v) cost inflation (drilling, oilfield services, engineering & construction), (vi) new strategies (Bitumen JVs, and leveraging DeepH20 rig equipment), (vii) old strategies (balance sheet repair, asset sales or optimal mass), (viii) more onshore directional drilling, and (ix) industry (in) efficiencies and reduced cap-ex.

Overall, they say, it "was apparent that the industry remained focused on balancing its project risk/reward investments (up and downstream), and that technology remained a critical differentiating factor. Even though oil and natural gas prices are well under their 12-month highs, the industry is still generating good profits and cash flow and will continue to reinvest. Some companies have opted to spend less because of cost inflation, but we view that to be a positive. Near term, weather, world economic growth and the consumer remain swing factors."

This is the kind of report that makes me think it's going to be a long time before Crude Oil trades outside the $50 to $70 range, and when it does, the prices are more likely to be higher than lower. Traders therefore cannot dismiss the healthy cash flow, and the use of that cash for increasing dividends and share buybacks.

Hence it would make no sense to me to be under-weighted this sector.

Posted by Posted by Bill Cara on November 8, 2006 08:58:00 AM | Category: 10 Energy

Discourse

From Jim Willie, maybe the oils are starting to be in the buying range?

THE CRUDE OIL NEW SPIN

Has anyone noticed the sudden shift in spin? The financial media has seen fit to remind us of a Nigerian threat to reliable oil supply, and a risk of Saudi continued oil output. Two weeks ago, my regular reminder to friends was to expect this shift, a bold maneuver from the evil twins Goldman Sachs and JPMorgan to signal their changed stance. These powerful twins can be expected, like night follows day, to move their money into long energy positions in a revision which might have begun. An intermediate rally in energy be coming very soon, one to weaken the USDollar. The next news story on energy might involve Russia with their utterly blatant confiscation in Sakhalin Island aimed against both Royal Dutch Shell and Exxon Mobil. It is not new news, but it is news to repeat a few times to push energy upward, now that the “boys� have their positions in place at the bottom. The next story after that might pertain to renewed warfare in the intractable Lebanon tinderbox. As crude oil rises in price, the USDollar falls.

Posted by: slynch [TypeKey Profile Page] at November 8, 2006 11:59 AM [link]

The spin on information is just nauseating. Today CNBC surmisesthat with the Dems in control and potentially taxing the oil companies, that that would prevent these stalwarts from investing in finding new sources, building infrastructure, etc. Seems like with all of the profits rolling in, BP didn't see fit to upfit its Prud. Bay operations nor ensure worker safety.

Posted by: Leisa [TypeKey Profile Page] at November 8, 2006 12:23 PM [link]


The question is..

Are they pumping to get out of energy positions.. or because they loaded up on the stocks last month and so they are going to run them up now?

Fundamentally - there is no shortage of energy - there is a glut.
Even China discovered 5B tons of coal yesterday.
Demand is weakening.
If there is a slowdown next year as Bill predicts there will be less demand.
If the price does not go down - then inflation keeps up and the Fed raises again and the -commodities will sell off again.

To be honest I don't trust today's price moves.
Too much spin, too much preelection positioning, too many people fading, and people fading the fading...

Posted by: Tradesman [TypeKey Profile Page] at November 8, 2006 12:39 PM [link]

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