• 4 minutes End of Sanction Waivers
  • 8 minutes Balancing Act---Sanctions, Venezuela, Trade War and Demand
  • 11 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 14 minutes What Would Happen If the World Ran Out of Crude Oil?
  • 2 hours New German Study Shocks Electric Cars: “Considerably” Worse For Climate Than Diesel Cars, Up To 25% More CO2
  • 5 hours Permafrost Melting Will Cost Us $70 Trillion
  • 1 hour Nothing Better than Li-Ion on the Horizon
  • 5 hours Russia To Start Deliveries Of S-400 To Turkey In July
  • 5 hours Occidental Offers To Buy Anadarko In $57 Billion Deal, Topping Chevron
  • 2 hours UNCONFIRMED : US airstrikes target 32 oil tankers near Syria’s Deir al-Zor
  • 5 hours Facebook Analysts Expect Earnings Will Reinforce Rebound
  • 21 hours Countries with the most oil and where they're selling it
  • 1 hour How many drilling sites are left in the Permian?
  • 9 hours ..
  • 22 hours Section 232 Uranium
  • 24 hours Deep Analysis: How China Is Replacing America As Asia’s Military Titan
  • 15 hours Iran Sabre Rattles Over the Straights of Hormuz
Alt Text

The Firm Floor Under Oil Prices

The continued slowdown of US…

Alt Text

Why This Rally In Oil Won’t Last

Oil prices rallied on the…

Rakesh Upadhyay

Rakesh Upadhyay

Rakesh Upadhyay is a writer for US-based Divergente LLC consulting firm.

More Info

Trending Discussions

Big Oil Earnings To Explode In 2017

The energy sector has been outperforming other sectors among the S&P 500 companies this year, with a gain of 21.79 percent year to date. Now the question is whether or not the recent OPEC deal will further improve the prospects for the sector in 2017?

Doug Terreson, head of energy research at Evercore ISI and Institutional Investor's top-rated analyst for integrated oil certainly believes it will. He expects oil companies to double their earnings in 2017 on the back of a sustained increase in crude oil prices and low oilfield service costs.

"We're unrepentantly bullish here. Investors portfolios in our view should be overweight energy and this includes integrated oil, E&P and oilfield service stocks," he told CNBC's "Fast Money: Halftime Report" on Wednesday. "Our call this year has really been not to overthink it because with the oil price rising and costs declining, performance would probably be pretty good, and so far so good," he said.

The bullishness is because OPEC not only struck a deal to cut production, it surprised the markets with a larger than expected cut. OPEC agreed to cut 1.2 million barrels a day and expects Russia and other non-OPEC nations to cut another 600,000 barrels a day of oil, bringing the total cut to 1.8 million barrels a day.

"This deal is significant. It sends a very strong message to the market and it should help the market find a balance," said Simon Flowers, chief analyst at Wood Mackenzie. Flowers forecasts Brent to average $55-$60 a barrel in 2017, but cautioned this would "depend on OPEC being very careful to meet the terms of the agreement," reports Reuters.

As a result of the deal, crude oil prices rallied along with a rally in companies from the oil sector. Crude has reached close to the current levels twice in the past year, but hasn’t been able to break out of it.

Hence, it brings a logical question to mind. Has crude bottomed out? The second question is, will we see the sustained rally in crude that is needed to justify a buy on oil companies? Related: Why The Oil Industry Shouldn’t Fear Peak Demand

“The main thing about this deal is there’s a lot less risk that oil prices go back to $40, or below that,” Desjardins senior economist Mathieu D’Anjou said, reports Business Financial Post.

Barring a black swan event, we can safely say that a bottom in crude oil is firmly in place. The investors should, however, not expect a runaway rally from the current levels.

Nevertheless, even if crude averages around $55 a barrel, investors can start accumulating oil companies for greater returns in 2017.

In the third quarter, the big five oil companies saw their cash flow from operations increase 67 percent over the second quarter and almost double from the depressed first quarter amount.

“The environment’s been tough but we’ve seen robust cash-flow delivery,” Brian Gilvary, chief financial officer of London-based BP, said Nov. 1 on a call with investors, reports Workboat.

Even at Brent crude prices average above $50 a barrel, the companies are confident they will generate healthy cash flows. Related: The SEC Wants To Know How $3 Billion Disappeared At This Coal Mine

“Our overall financial picture is set to improve in a meaningful way as we move into 2017,” Patricia E. Yarrington, CFO of San Ramon, California-based Chevron, said Oct 28. “Our objective is to get cash balanced in 2017, assuming $50 Brent prices.”

Similarly, Shell is also confident to increase cash flows from $21 billion this year to mid-$30 billion next year. “I’m sure we can cover even the dividend with organic cash flow” in 2017 at $50 oil, CFO Simon Henry told investors.

The oil companies have successfully cut costs, and are now able to churn out good cash flows even at $50 a barrel levels. Hence, they look like a good bet for the next year; however, investors should keep an eye on the OPEC nations for their follow-through. OPEC members are known to exceed their production limits, if history is any evidence. If they cheat, oil will again tumble, and this time it might not react as favourably to OPEC promises.

By Rakesh Upadhyay for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News