Novus Energy Inc fka NVS

[futrcash]

Comments from David Pescod on Crude Oil and G&O Stocks


CRUDE OIL $78.45 -3.00 - June 21, 2012

So what next for the price of oil is the big question. There

has been a significant drop in the price of crude oil from

roughly $105, dropping $20 rather abruptly...but the effect on

the junior resource sector has been much more than dramatic.

There is a long list of the walking wounded, those juniors

that are trading for a half, a third, or a quarter of where they

were just in the good old days of four and five months ago.

But again, after the ugliness, what next in a world where

many investors/consumers are worried about slowing international

economies and commodity prices in general.

Keith Schaefer

, editor of the Oil and Gas Investments Bulletin

puts it best. "It’s amazing you can go this quickly from

worrying about going to $150 a barrel, to worrying about oil

going to $50 a barrel."

As we survey the scene of trying to find anyone who has

recently had an opinion (and hey frankly folks, there hasn’t

been many people who have come anywhere near close to

predicting oil except for maybe Josef Schachter who we get

to later) and to start off on the bearish side of the formula, a

report just out by Raymond James is particularly bearish.

They are looking for oil to get as low as $65 in the next 12

months.

They write in the report, "The downside risk we saw in oil

prices has started sooner than we had expected, due primarily

to demand fears spurred by a flare-up of the European

debt crisis and negative economic data points across the

globe. That said, we continue to see downside pressure for

oil prices into 2013, as our oil model points to a severely

oversupplied global oil market.

While lower demand is part of the story, robust production

growth in the U.S. is the monster lurking in the shadows. We

expect this bogeyman to fully show himself before the end of

this year. Accordingly, we believe Saudi will begin to noticeably

cut production in 4Q12, while U.S. producers will begin to

curb activity in upcoming weeks. Combining the U.S.-driven

resurgence in non-OPEC supply with our lackluster demand

expectations, we believe that once the market’s focus shifts

from demand to supply, the picture will get uglier.

Thus, we are lowering our 2013 price forecast to $65/Bbl

for WTI and $80/Bbl for Brent – both well below the futures

strip and consensus estimates. We are also lowering our

long-term (10-year) WTI forecast to $80/Bbl, while keeping our

Chart courtesy of Institutional Advisors

long-term Brent assumption at $95/Bbl."

One person who just got a significant interview on

Bloomberg is John Manley who is the deep-thinker behind Wells

Fargo

and what he calls, "the Big Energy Bet". (To see this go

to Bloomberg TV. ) His belief is quite stolid that he doesn’t see

oil prices going a lot lower and he points out that there are two

things affecting the price of oil. One is the economic perception

(which is decidedly not good at the current time) and the second

point is supply and demand.

He just believes OPEC and the Saudis which has been trying

to support world economies up until lately, won’t want oil at

these prices for that much longer. Manley also point out that oil

is expensive to find and expensive stuff to lift.

He is not so constructive on natural gas though as he suggests

that gas will stay cheaper, longer than most people expect.

As far as the big difference between oil and gas he points

out that oil is easy to burn and easy to ship while natural gas is

easy to burn, but difficult to ship.

Manley tends to go with the big, dividend-paying integrated,

but his point is he believes $80-ish is the bottom.

If you are looking for people with a technical perspective, well

Bob Hoye

and his sidekick Ross Clark and they are expecting a

rebound in crude oil. They write rather bluntly, "The weekly

chart is oversold to a degree only seen eighteen times since

1983. Most instances saw the price recover 45% to 55% of the

preceding decline. With the exception of 2008, 35% was the minimum

retracement. If prices can close above $84 we should look

for an initial target of $91 with a likely target of $94 to $97."

But onto Josef Schachter, who is the one guy who has been

predicting a bear market in oil since late last year. His target has

been $75 and for the first few months of this year when oil was

at such a lofty level, I suspect his name evoked a few snickers.

Not any more.

While some of his favorite stocks have been hurt like everybody

else, he has a very interesting projection, expecting that

the North American markets haven’t finished suffering their traditional

summer ugliness and he thinks it’s going to get worse.

If you are looking for the good news in the ugliness, he suggests

that with the resource sector already having been trashed,

it’s probably going to be other sectors that take the worst of the

bruising for the rest of the summer. He expects a bottoming in

oil that could be as close to $75 and possible on spikes, even

lower. But then he says, you get the traditional winter demand

for oil kicking in as well as his expectation that the Saudi’s and

other OPEC people won’t want oil at these prices for much

longer.

Schachter points to some of the recent moves with the price

of oil according to seasonal patterns and it is truly uncanny particularly

look at the last two years when oil has bottomed two

years in a row at close to $80 in October and both years ran to

$105 or $110 by spring. That has elicited huge responses in

some of the junior stocks that today are yours for two-for-one or

three-for-one prices. Schachter also points out that $75 is not

that far away.

Needless to say, we can only hope that he’s right and that we

have a few months left of shopping at wholesale prices in the

market, to make up for the past few months


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