It was in the last several columns here at Oilprice premium that I positively laid down my timeline for recovering oil markets. In Late August I noted to you that the negativity that was pummeling oil stocks was creating several fantastic value opportunities, and counseled to find price targets to either begin accumulating or add to already existing, but very specific energy positions.
On September 1st, I sent out an email alert with a simple message: “…..a great opportunity has finally arrived”.
Those that heeded this call have been rewarded with some stellar gains.
But in the last week, I have been smiling as I see more and more of the ‘regular team’ of oil analysts join me – if a bit late – in my constructive view of oil and oil stocks.
First of note is Ed Morse of Citibank. Morse is looking at the marginal OPEC members outside of Saudi Arabia and noticing that they are also strapped for capital to develop fresh oil assets. Morse believes that investment won’t be quick to appear, with global oil companies now far more conservative in their foreign investment, and with these countries like Iran, Iraq, Libya and Nigeria all faltering economically under the strain of three years of underpriced oil.
Morse believes the output we’re seeing from these countries is about as much as they can manage and they won’t be able to pump much more, no matter how strong demand is for the rest of 2017 and 2018.
And that demand picture is incredibly strong; according to the IEA, about 1.7 – 1.8 million barrels a day stronger, which would blow out just about every previous forecast.
Accelerating global trade is driving that incredible demand for oil, as this Reuters article indicates.
But there are others who are sprinting to jump on this fast departing oil train.
Evan Calio of Morgan Stanley released a note (restricted access) yesterday saying that there is current value in the overlooked oil sector, left behind in the last two quarters by an on-fire stock market and a commodity sector that (outside of oil) has similarly exploded. Here’s my favorite part, referring to US oil companies and their future plans: “….increased balance sheet focus, continued asset sales, relative moderation of growth (outspends) and a longer-term capital return message for many large-caps.”
My translation from Calio is that the suicide plan of upspending oil production in an unsustainably low oil market price that most US E+P’s were following was delivering disappointing revenues and dropping share prices. Voila, they are realizing that more rational business tactics of cash flow and deleveraging debt might work out better for them.
I want to note that these are all messages that you’ve received from me here at oilprice premium months before the big investment bank analysts got around to it.
And I’ve got a new message today – one that might be repeated by Morse, or Calio, or even Currie or Blanch tomorrow: Not only are many non-core OPEC countries nearing the limits of production, but US shale frackers are too.
This is a note that I’ve done some work on with you in the past, but will get much more ink in coming columns. For today, however, it adds enormous fuel to my thesis that oil prices are only beginning their climb.
It also makes clear that the oil stocks you choose to take advantage of that climb will be critical – another reason to stay tuned.
But here’s one idea to keep you interested: Centennial Resources (CDEV).
(Click to enlarge)
This one has been a core holding since Mark Papa’s Silver Run Acquisitions SPAC bought in to the Permian specialist. It has all the earmarks of the type of company I’m looking at to take tremendous advantage of the coming oil boom – top Permian acreage, great management and a controlled balance sheet. Looking at the chart tells the story – Centennial has been nearing its lifetime highs, even while oil is still lounging nearer to $50 a barrel:
Centennial is hardly alone, though. I’ll be bringing you more great energy ideas as this oil renaissance takes further shape.