Displaying items by tag: OPEC

(Houston)

Oil prices are going to get some support as OPEC is planning to cut its output. That won’t be welcome news to those at the pump this summer, but it is good for the oil industry. Within the cuts, there will be winners and losers. One big worry is that the cuts won’t even work because there is still too much production from the US and because the primary fears are on the demand side, not the production side. The key is to buy oil stocks that can thrive in a low price environment and deliver improving returns to investors. These include EOG Resources, Suncor, Pioneer Natural Resources, NRG Energy, and Delek.

FINSUM: Oil stocks are deeply out of favor right now, so this is quite a contrarian call, but given the catalyst of OPEC cut they may be a solid bet.

(Houston)

Oil is looking likely to fall sharply, and not just because the world’s economy is looking soft. According to the IEA, oil supply is likely to dwarf demand next year, which will very likely lead to lower prices. Many new projects will come online, boosting oil supply far more than demand, which may only grow slightly, or even shrink if the economy heads downward. This will put more pressure on OPEC.

FINSUM: Nothing is looking bullish about oil other than geopolitical tensions (the effects of which tend to blow over quickly).

(Houston)

With all the volatility in stocks and bonds over the last few months, oil hasn’t gotten much attention. Drivers will have noticed gas is cheap right now, as oil prices have fallen considerably over the last several months. But will it stay that way? Right now the IEA is forecasting solid global demand growth in 2019, which should keep prices strong, but that forecast is vulnerable to some big swings. The IEA warns that since the signals from the global economy are not strong, the forecast could have some considerable downside.

FINSUM: Oil will probably dance to the music of the economy this year. It does not seem to be a significant leading indicator at the moment.

(Houston)

Oil has been whipsawing all over the place lately. For the last several weeks, oil has mostly fallen, with some short term big rallies along the way. One of those was just a couple days ago when Saudi Arabia and Russia announced an agreement to cut output. However, the bottom has fallen out of the commodity as Saudi Arabia’s energy minister announced that he would only favor a small cut. This led to big doubts about whether the efforts will actually lower supply, sending prices spiraling down 5%.

FINSUM: This seems to be a direct consequence of the US’ ability to boost its production to offset any declines by OPEC. Accordingly, Saudi Arabia doesn’t want to lower its revenue by cutting only for the US to take advantage.

(Houston)

If you haven’t been paying attention, something very interesting has been happening in the oil market. That development is that the US has quietly replaced Saudi Arabia as the world’s largest oil producer. That is a major development because the US is outside of OPEC and thus is a major counter-balance (headache) to Saudi Arabia and OPEC’s ability to control oil prices. Each time Riyadh wants to cut output to boost prices, the US can raise its production to offset the cut.

FINSUM: The US is in a strategically superior position for the first time in a very long time. This whole dynamic is symptomatic of the new era of bountiful oil. We ultimately believe that prices will stay well below $100 for several years to come because of how supplied the market is.