Weekly Update: April 8, 2015

| April 8, 2015

Weekly Update: April 8, 2015


Big Picture Outlook:

Well folks, it has been an interesting few days for crude.  There are a number of factors creating substantial volatility in both the WTI and Brent markets.

What’s going on?

First of all, the nuclear deal reached late last week between Western powers and Iran is being viewed skeptically.

While it’s a step in the right direction, the deal still has a number of huge roadblocks to complete success.

As you may know, there was worry amongst oil investors an agreement would result in oil sanctions being lifted against the rogue country.  That meant there was a possibility of around 1.5 million barrels a day of Iranian crude gushing back into the global marketplace.

But after reading the deal this past weekend, I can assure you such a thing won’t happen anytime soon.  As I said, there are numerous hurdles negotiators still have to clear before Iranian sanctions can be lifted.

With the imminent threat of additional supply hitting the market gone, crude bulls rushed into the market on Monday and Tuesday.  WTI jumped from $49 a barrel to just over $54 in the course of two days.

But then this morning’s EIA oil inventory report hit…

For the week of April 3rd, crude in storage rose by 10.9 million barrels- another very large reading.

Not surprisingly, WTI is reacting quite negatively to the EIA report.  The commodity is down just over $3 a barrel to $50.90 as I write.

Given the wild market swings over the past few days, I get the feeling investors aren’t really sure what to make of the oil market right now.

On one hand you have bullish long-term developments like decreasing capital investments from oil producers and increasing global demand.  But on the other hand, we still have a woefully oversupplied market.

How do we navigate such an indecisive market?

We’ll need patience.  The past few weeks have been filled with choppy price action amongst most oil producers.  I expect that to continue for at least a few more months.

Now don’t get me wrong…

I’m still expecting a large upturn in oil names starting in mid-2015.  By that time, we’ll likely start seeing the effects of producer cutbacks on US oil production.

And once US oil production starts turning lower, we’ll likely start seeing crude prices, along with the stock of producers, rally strongly.

But until then, we’re going to adopt a strategy of accepting smaller profits in our trades.

As you know, the goal of this service is to provide option trades with 100% profit potential.  But with the way the commodity markets have been trading the past few weeks, that goal has been rather challenging to achieve.

So here’s what we’ll do…

Until further notice, I’ll be setting the first profit target on our trades so we’ll collect a 50% profit.  The second profit target will be set for an estimated 100% gain.  What’s more, the risk control line will be set a bit tighter to account for the smaller profits we’ll be taking.

Keep in mind.  This isn’t a permanent change.  Once the oil market starts trending again, we’ll adjust our profit targets back to normal.

With that said, let’s get to this week’s updates…


Portfolio Highlights:

Editor’s Note: I won’t update every open position every update.  I focus on the positions with significant news or price movement. 

. . . . EOG Resources (EOG) April 17, 2015 $95 calls

EOG finally kicked it into high gear!  The oil producer surpassed our first profit target at $95 in yesterday’s session.  The rally sent our $95 calls up to a $1.88 bid, which is a 60% gain from our entry.

With the first profit target hit, I suggest conservative investors close this trade if you haven’t already.  Expiration is just over a week away and these $95 calls will lose value quickly if EOG falls back below our $95 strike.

If you’re very aggressive, you can hold these calls through next week to see if EOG can jump to our second target at $97.

. . . . Oasis Petroleum (OAS) May 15, 2015 $15 calls

After a few weeks of choppy, sideways trading action, bulls sent OAS surging to higher prices.  The Bakken oil producer rallied to $17.45 in yesterday’s session, which sent our $15 calls up to $2.45 a contract- an 88% gain from our $1.30 entry price!

If you’re conservative, I suggest you take at least partial profits on this trade.  I realize OAS hasn’t yet hit our first target at $18, but like I mentioned earlier- this market isn’t giving up big gains easy.

If you’re very aggressive, keep holding for our profit targets at $18 and $22.

. . . . WPX Energy (WPX) May 15, 2015 $12.50 calls

Here’s another oil and gas producer that’s acting very well in recent trading.  WPX shares jumped to multi-week highs near $13 in yesterday’s session as investors realize the value in the oversold name.

Speaking of value…

Analysts at KLR Group initiated WPX shares with a “buy” rating and $19 price target this morning. 

If you’re still in this trade, I recommend you keep holding your $12.50 calls for higher prices. We still have over a month until expiration and this name is poised to move higher quickly.


Category: Commodity Trading