Oilfield Magazine


Yes, oil will rebound — will you be ready?

Yes, oil will rebound — will you be ready?
February 15
20:38 2016

Not even the savviest oil experts or canny analysts know exactly when plunging oil prices will reverse course — and start persistently winging up again. But sooner or later they will, and perhaps with force. On Friday, U.S. benchmark West Texas Intermediate (WTI) oil prices gained some ground, rising an impressive 12 percent to close at over $29 a barrel, but that’s still pretty unimpressive given the steep fall overall.

So, investors shouldn’t just stay defensive, and depressed, about the stock market and tumbling oil prices. It’s time for some aggressive opportunism.

More specifically, consider seizing the advantage the chaotic oil industry is providing. Not only oil stocks but practically the entire equity market is selling at huge bargain prices. Intrepid investors can buy attractive energy sector assets at fire-sale prices and ultimately rack up huge profits when the industry regains solid footing.

“We can’t say precisely when oil prices will rise, but we can say with great confidence that, barring a worldwide depression, rise they will — and boost a varied mix of stocks hurt by the oil carnage,” said Stephen Leeb, president of Leeb Asset Management and publisher of The Complete Investor newsletter.

What’s happening is unprecedented. While low oil prices always hurt energy companies, they used to be an unalloyed blessing and a windfall for developed economies that were huge oil importers. In today’s world, however, depressed oil prices have inflicted more widespread pain. “That’s partly because retrenchment by frackers has percolated through a broader swath of the economy,” noted Leeb, referring to the drilling technology that has revived oil and gas output in the U.S.

By the same token, though, a rebound in oil prices will benefit a diverse group of industries and stocks beyond the obvious oil giants, he added. Here’s why Leeb believes the punishing oil-price decline will have to snap back. He points out that demand for oil is rising, especially in the East. China’s oil use has risen more than 8 percent year-over-year, or by about 700,000 barrels a day, he noted.

“And growth in other Eastern countries, from India to Vietnam, promises further increases in demand,” Leeb argued. “Indeed, oil demand is rising even in Middle Eastern oil-producing countries that are under pressure to modernize their economies and accommodate growing populations.” In the meantime, Leeb pointed out that the world’s oil producers are running at 100 percent of capacity.

“Any gains in production from Libya and Iran will be incremental but would be insufficient even to offset next year’s expected big jump in demand,” Leeb said. “And with Saudi Arabia already producing full-out, any efforts by the Saudis to wring out more oil risks damaging their oil infrastructure.”

Plus, there’s the rising cost of maintaining top production. “If you take into account all-in costs, which include the expense in protecting their oilfields and providing social services,” said Leeb, “the Saudis are losing ground in a big way.” Most analysts calculate that for Saudi Arabia to balance its national budget, it needs oil prices at $80 a barrel.

The shellacking in oil has shuttered many long-term projects, including some in the Middle East, causing losses “likely in the hundreds of billions of dollars,” Leeb estimated.

See more at #CNBS http://www.cbsnews.com/news/yes-oil-will-rebound-will-you-be-ready/



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