Financial Professionals

Market Insights

A A A

Energy Market Update

04/14/2010

I am done with my Fast Money oil price predictions ($90 before $60), taking my official bow and stating that $87.09 on April 6th is good enough for me - close enough to $90. Now leave me alone!

Here is what I will give you going forward: energy should be an overweight in your portfolio.  The world doesn't have enough of it to meet the growing emerging market demand. Governments have done little to offer incentives for large oil companies to increase production. There remain plentiful global "evil doers," as President GW Bush, liked to say. Candidly, I believe the Obama Administration basically acknowledged higher energy costs are here to stay by reversing its campaign platform and allowing off shore drilling in certain domestic waters.

For those "inside baseball" readers, here is what is going on near term…

Oil inventories continue to rise; in fact from January 29 to April 2, the Department of Energy has reported 10 consecutive weekly increases in inventory levels. So, near term prices are vulnerable and, this week, we began to see that as the short dated contracts declined while the long dated contracts rose, a signal that near term prices may struggle.

India used 3.2 million barrels of oil per day in February, equal to February 2009, however gasoline was up 12.6% year-on-year.

OPEC is cheating again for the month of March, as they pumped 100,000 barrels per day more than their quota, the biggest violator being Nigeria. Quota compliance was 82% in March 2009; for March 2010 it fell to 47.7%. Keep in mind that OPEC does not have a scheduled meeting on its agenda until October.

Finally let's place this next item firmly in the category of  "don't deviate from the plan."   Kind of makes me wonder if they are getting out of Nat Gas on the bottom and buying Oil at the top:  EOG Resources this week went out of its way to state that "it plans through asset sales and new exploration to transform itself into a large onshore U.S. oil producer, significantly shifting its focus from natural gas. The Houston-based energy company said that it would sell as much as $1.5 billion in natural gas assets over the next 14 months to fund its exploration and may even seek a partner to develop other gas fields as part of an ongoing strategy to search out more U.S. oil reserves."

 

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.