Crude Moves Past its Headwinds
June 24, 2018
It looks like we can take the OPEC meeting in Vienna off the list of market concerns. The Organization of the Petroleum Export Countries (OPEC) unofficially agreed to raise output by one million barrels per day (bpd).
Some members, such as Venezuela, Angola and Iran, may not be able to increase production, leaving analysts to believe a more realistic production increase is closer to 600,000+ bpd. Nigerian Energy Minister Emmanuel Ibe Kachikwu commented that supply was likely to increase by 600,000-700,000 bpd.
Traders are worried that there is not enough oil to meet the increasing world demand. On Thursday, Saudi Arabia Energy Minister Khalid al-Falih warned that the world could face “a deficit in the second half of this year of 1.6-1.8 million barrels.”
Prior to an OPEC meeting earlier this year, President Trump attempted to persuade the OPEC cartel to increase production by tweeting the following:
“Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at seas, Oil prices are artificially Very High! No good and will not be accepted!”
And earlier today, he tweeted:
“Hope OPEC will increase output substantially. Need to keep prices down!”
There is no doubt that trade war uncertainties add some pressure on oil as well, in large part as the U.S. dollar edges higher. That said, crude is near a key support point at a trend line that has held for more than a year. As long as it continues to hold, investors should consider an equity investment approach that includes both value and yield.
Oil Stocks Flash Buy Signals
I was pleased to see strength in crude today, and at this point I think oil stocks are flashing clear buy signals. I like what I’ve been seeing in names with exposure to the Permian Basin and Eagle Ford.
I’ve recommended several oil stocks in my newsletters, including one that has just about doubled since the end of February. Another is up 26% in that same time.
Looking at other names, I think Concho Resources (CXO) is extremely oversold; however, it’s the smaller midland and Texas ideas that are on fire right now, especially those in the Wolfcamp and Bone Spring formations like Diamondback Energy (FANG) and Matador Resources (MTDR).
The good news is that the long-term outlook for crude remains in place. I continue to like a lot of oil-related companies, and this is an area I am watching very closely.