The past several years have been tough on the American oil industry, as heightened uncertainty and low prices have caused many producers to declare bankruptcy or cut costs and reduce output. However, prices are expected to stabilize as a result of market-balancing agreements by OPEC. Those interventions, coupled with efficiency gains and declining costs, means that this could be the best time to invest in oil stocks. Read on for more oil investment advice.
In November 2016, OPEC’s member countries agreed to stop fighting over market share and to support oil prices by cutting output. The goal of these output reductions is to reduce the oil surplus that has built up over the past few years, and if all goes according to the plan, almost half of the stockpile could disappear over the next several months. This will balance the oil market of the near future, which can stabilize prices at a higher level.
Repositioning for Growth
Before the economic downturn, many of the country’s oil companies relied on high prices to spur growth. However, with astronomical prices a dim memory, producers are shifting their focus to cost reductions, which allows them to operate at the lower rate. These efforts are expected to pay off, with many producers putting themselves in a position to thrive at a lower price. Shale producers have experienced a similar transformation, as they’ve focused on optimizing well completions, increasing drilling efficiency and high-grading portfolios.
Shale Oil is a Game-Changer
America’s shale plays have greatly changed the world energy industry. Producers have flocked to these regions to tap into the vast resources that are hidden underground. While the boom led to a market surplus and lower prices, these deposits are still almost full. Because of this, these regions can drive substantial returns for major producers, once the current oversupply is diminished.
Because of declining supplies, the oil market is expected to rebalance itself, which can stabilize prices or push them higher. In the meantime, deep cost cuts have put producers in a position to grow at lower rates in the near future. Because of these factors, this may be the perfect time to invest in oil stocks.