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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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Oil Stocks To Watch As Geopolitical Risk Mounts

Kurdish Military

This week in oil news continue to deliver nothing but ‘green lights’ for investors, and keeps me convinced as I have been for several weeks now that every dip in oil prices – and oil stock prices – is an opportunity to position oneself aggressively for the medium term.

One story that added to my bullish attitude has been ongoing skirmishing in Kurdistan. Kurdish Independence has been an ongoing struggle, and the recent ISIS losses have given the Peshmerga renewed room to push back on the centralized Iraqi government and Turkish forces looking to retain control of Kurdish land – and Kurdish oil. The U.S. is supposedly supportive of Baghdad, but also historically very supportive of the Kurds. This makes the U.S. position touchy indeed. Kurdish oil output totals about 1.2m barrels a day and a recent small shutdown is about to be restored. I don’t expect any large-scale removal of Kurdish oil from the global marketplace, unless full scale civil war erupts, but continuing destabilization is going to add bullish sentiment to the current market in any case.

Meanwhile, Saudi oil minister Al-Falih again confirmed the Saudi Aramco IPO on track for 2018, after several rumors that the Saudis might call the whole thing off, or alternately look to privately place the entire 5% of the proposed sale in Chinese hands. While a public offering would bring a much higher price as well as allow continued easy issuance of shares to raise capital in the future, the Saudis have been threatening the London stock exchange with pulling the IPO to forego full due diligence. In my view, the Saudis will neither pull the IPO nor avoid the full exchange spectacle of a public offering. The Saudis have been working on production cuts and compliance too hard to put this IPO in jeopardy. Since oil is now on the upswing, the Saudis can take their time on the IPO, particularly as all of OPEC has confirmed their readiness to extend production cuts through 2018. This continues to be massively bullish for the markets, and the final valuation of the Saudi Aramco IPO whenever the Saudis decide to schedule it. I suggest that investors put the Saudi Aramco IPO on your radar now, because whenever it happens, U.S. investors might find it very difficult to participate without preparation. And I want to give an almost blanket recommendation for owning the initial shares when they are offered.hile we wait, I still remain convinced of concentrating investing efforts on well capitalized Permian shale producers. And I’ve recommended staying clear of both domestically focused and global oil services companies, but one short-term opportunity that might be forming in the oil services group is bellwether Schlumberger (SLB). Schlumberger seemed to be benefiting from the oil rally into early October, when several trade houses, including BMO, downgraded the stock, positing that horizontal drilling revenues for 2018 might not be as strong as Schlumberger suggests.

I don’t even really care whether BMO has this right or not – I recognized and warned against falling shale rig revenues months ago for the oil services group, but there is always a price at which I become interested in the number one oil services company. And Schlumberger may again be reaching that price:

(Click to enlarge)

It doesn’t take a trading genius to realize two things about SLB: one, that it’s stock has been continually negatively impacted by the oil bust and two, that negativity is at least temporarily wiped away when shares near $62-64.

And while I don’t want to be invested strongly in the sector right now, I do find SLB to be approaching a very compelling trade area.

One idea for you as we all await the Saudi Aramco IPO.




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