6 reasons why the rally in oil and oil stocks is not over yet

in #news6 years ago




6 reasons why the rally in oil and oil stocks is not over yet




  • The oil price and oil shares are among the best students in their class in recent months. But even after an unnoticed, sharp rise, oil and oil stocks remain interesting. There are 6 good reasons that this rally can last for a while in the medium term.

  • Analyst Drew Venker of Morgan Stanley currently sees a divergence between the strong sentiment among the oil companies and the weak sentiment among the investors. For example, oil and oil stocks remain a contradiction, even after the sharp rise of the last few months.

  • Since August last year the oil price has already risen 50% and oil shares on average 48% compared to 13% for the S & P 500. But there is more fuel in the tank:

1. Strong demand for oil

  • The global oil demand will increase by 1.5 million barrels per year this year to a new record of 99.3 million barrels.

2. OPEC discipline

  • Since 2016 there has been a production restriction among the OPEC countries. That limitation holds good. Saudi Arabia in particular is happy with this because they earn $ 3.1 billion more for every $ 1 that the oil price rises.

3. Geopolitics

  • Increasing tensions between Saudi Arabia and Israel, tensions in Syria and especially tensions around Iran. In addition, there are also problems in other important oil countries such as Libya and Nigeria.

4. Underinvestment

  • The sharp fall in oil prices a few years ago caused some large projects to be removed in the North Sea and Canadian tar sands. The capital investments in new oil projects fell to the lowest level in 20 years. Some other large oil wells are gradually drying up while no other projects are ready to take over.

5. Shale discipline

  • Despite the sharp rise in oil prices, American shale producers continue to keep their investments under control. There is no longer being borrowed massively to grow. Now the oil producers prefer to grow on their own. The near-death experiences during the previous oil crash made the companies deep enough not to do any foolish things anymore and to grow in a disciplined way.

6. "Middle Distillates"

  • "Middle Distillates" is a certain type of oil used to make fuel for airplanes, trains and large machines. From 2020, ships must also use this fuel because it is much more environmentally friendly. This will support the demand for oil even more.



Source: MarketWatch

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