On Sunday, 13 members of the Organization of Petroleum Exporting Countries, or OPEC, and other countries (including Russia) will be meeting in Doha, Qatar, for discussions that could affect the fate of oil prices--and the stocks of struggling oil and gas producers in the U.S.
What do other analyst think?
Jason Wangler, an analyst at brokerage and investment bank Wunderlich Securities, said he doesn't expect any type of cut but rather a ceiling in production--and therefore a potential floor in oil prices could emerge. He warns that with the upward move of oil prices recently on hopes for the talks (to above $40 per barrel, from under $30), a lack of a cut could be viewed as disappointing for both oil and oil stocks next week. Further, with first quarter earnings season rapidly approaching, "We look for most companies and investors to focus on a brighter future than the ugly recent past."
Oil and gas consulting firm Wood Mackenzie said even if an output freeze is announced, it doesn't expect a "genuine" one to evolve for the rest of the year. And while Iran has been able to boost production by about 375,000 barrels of oil per day since sanctions were lifted in January, the firm doesn't expect the country to recover all of the 1 million barrels per day it lost before 2017. Indeed, Mark Meyer, head of research at Tudor, Pickering, Holt & Co., called Iran's progress at ramping up of production "anemic."
"Bottom line: A production freeze is optically good but the trend of improving U.S. inventories is more important and should be the market focus," wrote TPH, an investment bank headquartered in Houston, this week.
Blue skies are already being forecasted. The U.S. government expects U.S. shale oil production to fall for a seventh month in a row in May. And the International Energy Agency anticipates that world surplus will diminish to 200,000 barrels per day the latter half of this year.
Analysts at the KLR Group said Friday that they expect this weekend's meeting to be a "non-event." And if there is a collective output freeze, they don't expect Iran to participate, gradually increasing production to 3.6 million barrels of oil per day by early next year.
Many believe positive expected results from the Doha meeting are already baked into oil stocks, so they're sticking by the strongest names in anticipation of whatever might happen Sunday. Tudor, Pickering, Holt's core list includes majors like Chevron (CVX) and Royal Dutch Shell (RDS.A) ; explorers and producers such as EOG Resources (EOG) , Concho Resources (CXO) , Cimarex Energy (XEC) and Rice Energy (RICE) ; oilfield service companies such as Baker Hughes (BHI - Get Report) , Halliburton (HAL - Get Report) and Schlumberger (SLB - Get Report) ; and midstream, or infrastructure, provider Kinder Morgan (KMI - Get Report) . Among the higher risk names, it likes Statoil ASA (STO) , Continental Resources (CLR) , Range Resources (RRC) , WPX Energy (WPX) , Weatherford International (WFT) , RPC (RES) , Targa Resources (TRGP) and Williams Partners (WMB) .
"We're not looking to trade the meeting," said Jack Mohr, Research Director at Action Alerts PLUS. "For SLB, we believe that structural changes in the industry will be in the form of efficiencies, technological leadership, risk management and effective capital deployment."
He added that "Schlumberger fits the bill on all fronts, which is why we own it for the trust and view it as a long-term play on continued leadership, constant innovation, and ultimately value creation."
Given current valuations, Simmons & Co., the energy-focus unit of Piper Jaffray, continues to recommend high margin/low cost, quality operators with "palatable" balance sheets, including large cap companies such as Apache (APA), Concho, EOG ., Noble Energy Inc. and Pioneer Natural Resources including smaller names as Diamondback Energy Inc., Newfield Exploration Co., Parsley Energy Inc. and Gulfport Energy Corp.
Doha meeting on April 17
Doha meeting on April 17
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Doha meeting on April 17
JPMorgan’s Arun Jayaram
In E&P investing, inflection points tend to be powerful stock market events. Since the February lows, oil prices have surged ~34% on the back of improved demand data and expectations that shale production will roll hard in 2H16. However, E&P equities have risen 71% over the past 6 weeks, resulting in many stocks trading above our view of intrinsic value at the strip. Based on our updated valuation work, we believe the risk-reward on several E&P stocks is skewed to the downside. We downgrade Southwestern (SWN) to Underweight from Neutral and EP Energy
(EPE) to Neutral from Overweight. We upgrade Anadarko (APC) to Overweight from Neutral to reflect an attractive relative valuation, a resilient production profile at lower commodity prices, and further balance sheet improvement…
Over the intermediate term, we anticipate a shift back to quality as the eventual call on U.S. Shale can likely be satisfied by the low end of the U.S. cost curve. Despite our anticipation of a gradual oil price recovery in 2H16, we believe the recovery has limits given the magnitude of well productivity and efficiency gains combined with a benign service cost environment. One of the key takeaways from Q415 earnings season was meaningful well productivity improvements at the low end of the U.S. cost curve. For example, Pioneer Natural Resources (PXD) noted that IP-90′s from its Wolfcamp B program in the Northern Midland Basin delivered 50% higher cumulative oil output on a YoY basis, while EOG Resources (EOG) stratified its inventory into ‘premium locations’ that can deliver 50% more oil production on a per lateral foot basis judging by IP-120 production. Similar to the U.S. natural gas market, we believe the eventual intermediate term call on U.S. oil can likely be satisfied by the low end of the U.S. oil cost curve. As such, we expect a rotation back to quality from beta stocks as we expect companies levered to low cost rocks to benefit disproportionately to a commodity price recovery.
In E&P investing, inflection points tend to be powerful stock market events. Since the February lows, oil prices have surged ~34% on the back of improved demand data and expectations that shale production will roll hard in 2H16. However, E&P equities have risen 71% over the past 6 weeks, resulting in many stocks trading above our view of intrinsic value at the strip. Based on our updated valuation work, we believe the risk-reward on several E&P stocks is skewed to the downside. We downgrade Southwestern (SWN) to Underweight from Neutral and EP Energy
(EPE) to Neutral from Overweight. We upgrade Anadarko (APC) to Overweight from Neutral to reflect an attractive relative valuation, a resilient production profile at lower commodity prices, and further balance sheet improvement…
Over the intermediate term, we anticipate a shift back to quality as the eventual call on U.S. Shale can likely be satisfied by the low end of the U.S. cost curve. Despite our anticipation of a gradual oil price recovery in 2H16, we believe the recovery has limits given the magnitude of well productivity and efficiency gains combined with a benign service cost environment. One of the key takeaways from Q415 earnings season was meaningful well productivity improvements at the low end of the U.S. cost curve. For example, Pioneer Natural Resources (PXD) noted that IP-90′s from its Wolfcamp B program in the Northern Midland Basin delivered 50% higher cumulative oil output on a YoY basis, while EOG Resources (EOG) stratified its inventory into ‘premium locations’ that can deliver 50% more oil production on a per lateral foot basis judging by IP-120 production. Similar to the U.S. natural gas market, we believe the eventual intermediate term call on U.S. oil can likely be satisfied by the low end of the U.S. oil cost curve. As such, we expect a rotation back to quality from beta stocks as we expect companies levered to low cost rocks to benefit disproportionately to a commodity price recovery.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Doha meeting on April 17
oh geez I remember another "big" OPEC meeting from a while back where everybody predicted the Saudis HAD to cut production
they didn't cut production, to everyone's surprise
and oil prices began their free fall
it's really impossible to try to predict what OPEC will decide
and we know OPEC agreements have as much credibility as budget agreements between the White House and Congress
they didn't cut production, to everyone's surprise
and oil prices began their free fall
it's really impossible to try to predict what OPEC will decide
and we know OPEC agreements have as much credibility as budget agreements between the White House and Congress