Oil is trapped in a sideways spiral. Despite so, relentless pursuits have treated this recent cycle like a binary issue.
No matter what your conviction is oil has taken a beating. At this very moment WTI is not performing, but the global issues where demand and supply have been in flux is about to overturn, and many CEO's and investors are certain oil has hits its bottom. Again.
OPEC is looking for the perfect price, one that is substantial to keep investors excited and grown revenues, at the same time metering the costs so as not to encourage more shale drilling. Since the shorts are not piling up this may be a temporary price issue...OPEC may be cutting but they have hundreds of billions in upsteam investment planned over the next five years, That is evident is by OPEC's multi-hundred billion dollar upsteam investment program (see data).
On March 9th Goldman Sachs Energy Pulse stated: The industry appears to be using a wide spread of oil price assumptions in its strategy presentations, despite an almost completely flat forward curve. Goldman also forecasts a deficit throughout 2017.
The same day at CERAweek - the oil industry conference in Houston - John Kemp, the Reuters Oil & Gas Analyst noted in his analysis:
"a celebration of higher prices, progress towards drawing down global stockpiles, and optimism about the outlook for shale producers. But it ends with the biggest daily fall in prices for more than a year, fears that stocks are not declining as planned, and warnings that shale producers could cause a renewed slump if they increase output too fast."
A surprise announcement came that Respol has found that largest onshore oil reservoir in the past three decades, but WTI still slide to a new lows.
Despite the oil price debacle, Respol stated: the latest drilling at its Nanushuk play had extended previous discoveries by 20 miles and increased estimated resources to 1.2bn barrels of recoverable light crude oil.
Oil is still looking for its footing. Sentiment says a bottom has formed - and they state it is very clear. Momentum has turned positive, but where it will go is anyone's guess. Oil could set at a permanent $55/bl.
An article I publishing at investing.com last year covered the state of oil. A key issued I stressed was abut how hard it is to 'guestimate' correctly - "Bottoms are not always clear and present. With oil, it is quite likely that there has not been enough of a dent made in the global surplus supply to logically support acknowledging the fact we have hit a bottom. Inventories are very high. That aside, the oil industry is powered by talented professionals who plan and forecast, and even they misjudged the slowdown. That itself is a significant observation, and not one investors should take lightly."
I also added: An estimated 40% of oil-related companies are entering bankruptcy protection. In mid-2015 many oil service groups extended additional credit to energy firms to pick up the slack in the industry and kick start growth. Now with global growth slowing down and a growing oil surplus, there is real exposure and losses that will need to be funded. The turnaround is just starting to be planned, and an entrance at this point would be premature. But it is time to build out a new watch-list for energy groups and avoid the urge to be dragged down the road while oil finds its bottom.
See my previous Investing article here.