Lions, Bears and Ducks, Oh My!1 Well there are no lions, but Bear Markets and Drilled Uncompleted wells (“DUC wells” pronounced “Ducks”) in the Permian are moving oil prices this month.  Bear Markets for Oil Prices: WTI and Brent Oil prices are in Bear Market territory this month, having had a 2 standard deviation downward…

The Relationship Between S&P 500 Returns, Earnings Growth, P/E Expansion, and Interest Rates The S&P 500 increased from 2,789.80 on January 1, 2018 to 2,924.59 on October 1, 2018, a year-to-date return of 4.83%. As shown in the graph below, this return was fueled by a solid increase in earnings of 9.20% but was partially…

The Renaissance Board How to Boost Shareholder Value through Board Mix Corporate selection of independent board directors has historically followed broad economic and social trends.  First came the celebrity board director – CEOs, politicians, and even media stars – who helped increase brand awareness.  Then, following Sarbanes-Oxley, came the rise of the audit focused board…

Oil Prices: Supply, Demand and the S&P 500 It is common knowledge that oil is a commodity, with what economists describe as “elastic pricing” set by the markets.  The following supply and demand factors consistently move oil (and natural gas) prices and are the focus of Wall Street analysts and academics, both in the long…

U.S. Economic Report – September 30, 2018 During the second quarter of 2018, the U.S. economy grew at a feverish 4.2% over the prior quarter.  Economic indicators point toward continued economic growth. Overview of the U.S. Economy According to the third estimate released by the Bureau of Economic Analysis (BEA), the U.S. economy grew in…

Permian Activity Flattening / Growth is Moderating Given Pipeline Constraints Although the Permian rig count has continued to climb to over 500 drilling rigs running, new well completions in the play have flattened out month over month as in-basin transportation constraints begin to materialize.1   As shown in a recent EIA report graphics below, the…

Oil Price Forecasts Diverge According to a recent Credit Suisse analyst report,1 the investment bank forecasts longer term oil and gas prices at $65.00 per barrel, approximately $9.00 above the Nymex Futures strip pricing and the Bloomberg Consensus forecast.  All three of the forecasts, however, show that the markets expect oil prices to remain in…

Geopolitics and the Strategic Petroleum Reserve On May 8, 2018, The Trump administration declared that the United States was withdrawing from the Joint Comprehensive Plan of Action (the Iran nuclear deal) that lifted economic sanctions upon Iran, most notably restriction on Iran’s oil imported to the US.1  Furthermore, the U.S. threatened to put pressure on…

Diesel and Gasoline Price Spreads Higher This Summer Since January 2017, diesel prices have exceeded regular gasoline prices, but to varying degrees. Demand for gasoline tends to increase in the spring and summer while diesel demand (and the similar hydrocarbon product heating oil) is typically higher in the fall and winter. However, there has been…

Is Gold a Substitute for Crude Oil? Oil and gold are not often considered substitutes, but there is a long-standing financial theory regarding the gold-oil relationship.  On one hand, oil is a major consumable commodity and its market price partly drives US inflation rates (via the cost of diesel and gasoline).  Higher oil and gas…

Overview of the U.S. Economy According to the third estimate released by the Bureau of Economic Analysis (BEA), the U.S. economy grew in the fourth quarter of 2017, with real gross domestic product (GDP) increasing at an annual rate of 2.9%, following a third quarter increase of 3.2%.  The increase in real GDP in the…

Even as Oil & Gas Prices Increase, MLP Values Decline When the Federal Energy Regulatory Commission (“FERC”) evaluates tariff rates on regulated pipelines, they target a “just and reasonable” return on equity (“ROE”) to compensate pipeline operators.  To determine these rates, operators calculate their expenses associated with running their pipelines and are allowed to charge…

International Energy Agency’s Report is Bullish on U.S. Oil Production According to the U.S. Energy Information Administration (“EIA”), U.S. crude oil production has grown to 10.4 million BPD (“Barrels per Day”) as of March 2018. 1 This production level surpassed the previous peak of 9.6 million BPD dating back to 1970. 2 The International Energy…

Business owners and shareholders cannot adequately plan for a sale or merger unless they understand the price that the business will bring in a fair transaction.  In order to know this price, an appropriate valuation is required. The right valuation will: Clearly indicate the value and value drivers of the business, arming sellers with the…

Can Leveraged Debt Retest Low Premiums? This article continues the discussion started in Article #1, “Is It Time to Invest in Leveraged Debt?” and  Article #2, “Leveraged Debt Investment Alternatives.”  Article #3 addresses the question of whether or not the leveraged debt market has reached its cyclical peak and if credit risk premiums can narrow…

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