Back in 2015, the market predicted the oil glut would end sooner rather than later.
Note the move from Feb 2015 to May/June 2015. A $48pb to $66pb move based purely on the ‘recovery’ or ‘rebalancing’ being underway. Of course, this proved incorrect. The subsequent fall was brutal and during the period saw Saudi’s, Iraq and Russia all producing at top target levels. Flooding the market was an understatement.
But here we are again at $48pb range and some 18 months more advanced. If the market wanted to get excited in Feb 2015, then surely it will want to get excited heading into OPEC’s informal meet due for Sept 26th?
There are many reasons why OIL has struggled over the last 18months, but the main pointer is simply too much oil vs demand vs the pre-existing stored glut.
Should Iran, Iraq, Saudi’s and Russian’s agree a CAP or Freeze in late September, then finally the market has a marker from which to benchmark any ‘rebalancing’. At present it is impossible to determine when a rebalance will occur if the likes of Saudia Arabia and Russia keep adding an extra 1 or 2 million barrels per day. US shale hasn’t gone away and will come back but not like how it was before.
If the big countries agree a Freeze, then there’s more reasons to get excited again than in 2015 – that’s for sure.
Talk is talk, but my guess would be that an informal agreement will be pencilled in Sept with a formal agreement pen’d in the biannual meet in Dec. This would set up a bullish period for PoO heading into 2017.
One last pointer… traditionally the US market/PoO dips into Autumn as the summer gasoline burn dwindles and refineries get back to normal. The very fact that OPEC are getting verbal again perhaps suggests that they too know ‘action’ is needed (in some form) to avoid another casino style attack on PoO by speculators kicks in again. Of course, that may still happen but if the verbal banter carries through Sept, Oct and some of Nov, then by the time the December OPEC meeting arrives, most shorters will have been left shirtless… well, that’s my guess.
The market may have got ahead of itself 18 months ago when it zipped PoO back to $65pb, but second time around it may just get it about right.
As an example to contemplate… Premier Oil (PMO.L) tested 180p per share in the 2015 recovery rally. Today, just $16pb shy of the $66pb reached in May 2015, Premier Oil is priced at 71p a share.
There are quite a few stocks out there like Premier Oil that have disconnected further and harder during the last 18 months. Not all will return to 2015 levels, but the ones in better shape certainly should. Faroe, Ithaca, and Amerisur to name a few should all do very well ‘when’ PoO recovers.