The oil industry is in better shape than many think, but we are still not bullish on oil stocks.
There Are a Few Signs of Hope on the Horizon for the Oil Industry
Russia Working With OPEC
The major players in the oil industry seem willing and able to finally address the rampant oversupply. Senior Russian and OPEC officials stepped up talks in January to take joint action to remedy one of the worst supply gluts in decades. Speaking in London, OPEC Secretary General Abdullah al-Badri urged other producers to work with the group to drain the ocean of oil that is washing over the world and forcing prices to their lowest levels in years.
India Taking over for China
For years, there was worry that a slow down in China would cool what demand there was for oil and send prices even lower. But just in the nick of time, India appears to be picking up for China. India made up almost 30 percent of the global increase in demand for oil for the first quarter of the year, the International Energy Agency (IEA) reported last Thursday. The IEA further reported that the demand for oil is set to grow at a “solid” rate for 2016.
Decreasing Oil Exploration
The drop in price, as expected, is having a chilling effect on exploration. In February, Valor International reported that oil exploration fell to its lowest level since 1970. The International Business Times also reported in February that U.S. energy companies slashed mining and exploration spending by 1/3. Worldwide, oil and gas companies have canceled a total of $380 billion in projects since the oil-price downturn began in 2014.
These things are all bullish for oil long term.
Current Outlook is not Favorable
We have never been as bearish on oil stocks as some have been. This notion that oil and oil companies will not ever have their time in the sun again is wrong and foolish. Eventually, the price of oil will recover to its long term-average price which is about 1/12th the price of an ounce of gold. The above points are very good reasons why the price of oil will recover eventually.
However, we are still not very bullish on oil (and more importantly oil stocks) in the near future. We would rate very few of the roughly 2,000 companies we follow as some of the best stocks to invest in now. And we rate the oil industry as (at best) average. If you would like to learn exactly why, continue to monitor our posts. We will be publishing more reports shortly.