Oil stocks in Canada and the U.S. have performed well in 2016, despite record supply and weak global economic growth. This should tell you something; its that oil isn’t going away.
Reason #1: Oil demand continues to increase
With the focus remaining on lithium and electric cars, world oil demand quietly increased by 1.6 million barrels per day (1.7%) in 2015, one of the biggest annual increases in a decade.
More people, equals more oil and the smart money is looking for opportunities to position themselves for the coming resurgence of this sector.
We discussed these exact issues in a June 12th article, titled Oil is Peaking for the Year where we predicted oil would top out near the $50 range and fall back as we have witnessed.
Reason #2: Big banks are preparing to bet on strong oil stocks
Citigroup has come out this morning with some bold words for the commodity sector that should be music for the ears of oil bulls.
Citigroup analysts, led by Ed Morse, published a note this morning which read:
“The oil market is treading water for now, but the oil price overshot to the downside earlier this year and this is clearly setting the stage for a bullish end to the decade.”
This is precisely what we highlighted back in June, explaining:
“What’s more, the IEA is predicting global demand to cross the 100 million barrels/day mark by 2018 and actually move into a supply deficit that year. If this happens, oil prices will likely retest $100.”
Global oil supply balance according to IEA
source: IEA
Click here to read the entire article Oil is Peaking for the Year.
Citigroup analysts clarified, in a note sourced from Bloomberg that,
“Unlike last year, when commodity markets rallied through the second quarter only to fall sharply come the third as oversupply persisted, this rally looks more sustainable as physical markets have tightened considerably.”
source: http://www.bloomberg.com/news/articles/2016-07-11/citigroup-bullish-on-c…
Despite crude oil falling below $45 per barrel Monday, the NYSE ARCA OIL & GAS INDEX was up 0.5% and has put up solid performance year to date.
Oil stocks will probably trade sideways or down for the next 6-12 months. But, after looking at the simple data and long term growth curve for oil consumption, a monster rally in oil stocks is just a matter of time. The market moving into a supply deficit in 2018 as predicted by the IEA will be a catalyst for this trend.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
