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Can Energy Provide Boost?

By Charles Payne, CEO & Principal Analyst

West Texas Intermediate (WTI) crude oil edged higher after inventories fell once again.  The Street was looking for a 2.5-million-barrel decline for the week ending on August 4th, but the actual result was a drop of 6.5 million. Note: The American Petroleum Institute (API) data showed a decline of 7.8 million, so there might have been whispers for a larger number from the Energy Information Administration (EIA) as crude inventory is now down 3.6% from a year ago.

In addition to rapidly declining oil and fewer imports (-491,000 last week to 7.8 million b/d), oil companies, large and small, are cutting their capital spending plans, which means fewer rigs and less drilling. Yesterday, Continental Resources announced a potential reduction of $200 million in their spending budget.

Announced Changes to Capital Spending During 2Q Earnings Season (million USD)


















Furthermore, with less drilling and greater draws in inventories, there are signs of improved domestic demand.  At the start of 2017, Marathon Oil presented its budget, assuming crude would be $55.00 a barrel on average; I’m sure they aren’t the only company in the industry that had such a rosy outlook. 

As American suppliers wrest greater control of global crude prices from the Organization of the Petroleum Exporting Countries (OPEC), they will have to do a better job of not killing the golden goose. This is something OPEC learned the hard way after the Arab Oil Embargo of the early 1970s.  Crude north of $50 and closer to $55 will have a net positive impact on the stock market and will underscore domestic economic growth.

Charles Payne
Wall Street Strategies


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