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Saudi Arabia, Russia To Cut 1.05 Million Bpd In November

Saudi Arabia, Russia To Cut 1.05 Million Bpd In November

OPEC+ concluded today’s Ministerial Meeting…

Dan Dicker

Dan Dicker

Dan Dicker is a 25 year veteran of the New York Mercantile Exchange where he traded crude oil, natural gas, unleaded gasoline and heating oil…

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OPEC’s Latest Failure Creates Opportunities For Traders

No one should be surprised at the outcome of the latest OPEC meeting, which was only hastily scheduled after the disastrous non-event that occurred in April. Still, no matter how many times that OPEC and non-OPEC oil ministers fail to reach any accord on production guidelines, there still exists a hope entering these short meetings and therefore a premium in oil's price that disappears after the inevitable failure occurs.

Every one of these failures and subsequent price drops have proven to be better and better opportunities to selectively buy oil stocks at a relative discount. And that is what I believe is happening again.

I've been completely convinced of the trajectory of oil's price after the bottoming of prices in February, and far less worried about a backtracking of prices that seems to plague nearly every other analyst I read. Most of them are increasingly cautious about the current rise in oil's price, now up more than 85 percent from those February lows. They point to temporary outages from Nigeria and Venezuela as well as the Canadian fires and rollover of production in Iraq and believe that the 'lofty' $50 price we've reached will be a temporary one, with a 'back and fill' movement in oil for the rest of the year. Most of these analysts even have targets for the end of 2017 not much higher than the prices we're seeing now, while in contrast I believe we'll see oil reach above triple digits by the end of next year. Related: Iran Eyes $185 Billion In Foreign Investment With New Contracts

And that is why I continue to see every even marginal drop in oil's price, from whatever source or for whatever reason, as a continuing opportunity to add to portfolios in quality oil E+P's and select oil services companies.

Like the drop being caused by this failed OPEC meeting.

The disaster of the previous OPEC meeting in April foretold this meeting's lack of an accord, as Saudi oil minister Ali Al-Naimi was forced to resign after his plan to combine production quotas from Iran and Russia fell apart at the last minute. The Russians did not even attend this time.

The new Saudi oil minister, Khalid Al-Falih, is a younger but less experienced man, unlikely to be able to forge a deal where the older Al-Naimi was not. Further, the rising price of oil since that meeting in April delivered even less urgency to OPEC members to make a deal.

This meeting might have broken a record for brevity – with members leaving Vienna barely faster than it took to refuel their planes. Related: Why $50 Oil Makes Sense

Each time that OPEC meetings on production limits have failed, oil has reacted negatively – but the reaction has become less and less: At the first OPEC disaster on Thanksgiving of 2014, oil dropped more than 6 dollars, on its way to a complete rout. This time, oil barely dropped 50 cents, and I do not see the total reaction to be much more than a dollar or two.

Still, there is an opportunity in this: Oil stocks that have been on fire have taken a break with the lack of a production cut, as obvious as that result might have been. Some stocks are worthy of buying here.

EOG Resources has recently again tested $80 a share. I wouldn't hesitate to add to that position under $78. Anadarko under $50 would again represent value as would Continental Resources under $40. Every time Schlumberger again touches $72, it seems to be a great buy.

I'm saying you should use this latest OPEC failure to your advantage by adding still cheap, select energy stocks.

By Dan Dicker for Oilprice Premium

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  • David Scott on June 06 2016 said:
    I appreciate your opinions but don't see an explanation as to why you believe oil will be in the triple digits by the end of 2017. Can you elaborate? Thanks

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