Oil Prices Are Surging, But There's More to Come - With Some Great Opportunities
Oil market fundamentals indicate upside potential in oil drilling activity and the companies that provide drilling related services
With Operation Epic Fury now more than a month underway and the Strait of Hormuz still effectively blocked, attention has shifted toward the immediate geopolitical oil supply disruption. This makes it easy to lose sight of what the fundamental oil market setup looked like before the war.
Before the conflict, the oil market was tightening — I originally wrote about that in Oil Geopolitical Risk, Surprising Positive Oil Fundamental Data, Ideas with High Oil Price Upside. I highlighted that oil demand was continuing to grow, but that OPEC spare capacity depletion and several years of lower oil prices had pushed the U.S. rig count steadily lower.
This reduced investment had begun to show up in official supply forecasts. In its February outlook, released before the war, the EIA projected that U.S. oil production would begin to decline. Since then, after the sharp increase in oil prices, the EIA has raised its production outlook:
But this updated view assumes that producers will add drilling rigs, which they haven’t actually done yet. In fact, U.S. oil rig counts have hardly budged and remain at a multi-year low:
Why haven’t producers responded to higher prices with more drilling rigs? What will happen to oil equities if the Strait remains closed for much longer? What if the Strait reopens soon and oil prices crash?
In this article, I examine these questions and their implications for the producers and oilfield services companies I’ve discussed on Bison Insights. These ideas have performed well so far, and they potentially have lots of room ahead to run:
Disclaimer: This is for informational and educational purposes only. This is not an offer, solicitation, or investment recommendation. Please consult an advisor and do your own diligence.
