Home » OPEC
Category Archives: OPEC
The latest OPEC meeting hasn’t produced meaningful production cuts, and oil continues to struggle. While this is great for consumers, it it not so for oil-producing companies. But, should investors consider buying oil stocks now? There are some pros and cons.
One big reason for considering buying oil stocks, MarketWatch reports, is that the company insiders are buying their own stocks as these shares lag the market.
Oil now trades at a price it was a the beginning of the year, but oil stocks have declined. According to Eric Green, a research director at Penn Capital, “There is a huge disconnect…The pessimism on the stock is unique.” Some of the oil stocks are down substantially, even 50%, while oil hasn’t gone down further.
For Mr. Green, it is either that the oil price will fall further or these stocks are underpriced. His company’s small cap equity fund is now overweight in oil.
Another encouraging sign for oil investors is that petroleum inventories keep on declining. What’s more, there’s a natural decline when it comes to oil production as the oil supplies are finite.
There’s also a political factor. Instability in oil-producing regions such as the Middle East, Venezuela, and Nigeria can affect prices in profound ways.
Moreover, a lack of big investments lately could lead to tight supplies down the line. And further production cuts coming from OPEC nations could spike up price of petroleum. Currently, Brent Crude trades around $52 a barrel, while WTI Crude is under $50.
On the other hand, there are some negatives when it comes to oil investing. Now, there’s an added oil coming from shale producers. A new supply from projects will hit the markets soon. Also, around 20% of shale oil production in the United States is funded with inexpensive credit, making it easier to fund projects.
Due to risk and uncertainty, many investors have abandoned oil stocks. Now, investors need to ask themselves if they want to join the insiders and go long with energy stocks.
The American Petroleum Institute has announced that crude oil stocks rose to 1.5 million barrels, well above forecast of only 900,000 barrels. This hasn’t affected oil prices as OPEC is cutting output.
In fact, currently traders in China and Europe are sending a record 22 millions barrels from Azerbaijan and the North Sea to meet the expectations of a supply gap resulting from cuts in production, according to Investing.com report. Traders bet that Asia needs oil and Europe has it. At present, there’s a contango in the futures market. This means that later months are priced higher, so traders can lock profits and ship oil long distance.
In December, OPEC nations decided to cut output by 1.2 million barrels per day (bpd) in the first half of this year. Presently, ships carrying oil to Asia are loaded with 11 million barrels of crude, higher than a record last December when 10 million barrels were shipped.
Rising oil prices are bound to benefit the U.S. shale oil drillers. The United States Energy Information Administration expects that crude production in America will rise by 300,000 bpd in 2018 in comparison to this year. It expects the production to be 9.3 million bpd then, which at the same same may keep oil from rising further. Unless OPEC acts.
Iran is also pumping up its oil production after decades of embargoes, and that will add to the supply. What’s more, some OPEC nations are experiencing financial woes, which may lead to cheating.
It is also expected that oil demand in the United States will increase to 20.22 million bpd, a 370,000 bpd increase. SO far the signals are bit confusing and point to a possibility of oil going in either direction. At this point, oil prices have stabilized.