Taal selectie

Oil

Shale is the name of the game

The WTI oil price ended the month of July at USD 68.8 per barrel, down 7.3% versus the ca. USD 74 June-end level. Shale oil producer shares were flat on average (XOP index), while our selection gained 0.3%.

CrudestocksSource : Bloomberg

The oil price stopped rising after Russia and Saudi Arabia committed to increase their production by up to 1 million barrels/day. Escalating trade tensions between the US and China - that could ultimately result in slower global economic growth - were certainly also a concern for short-term speculators (mainly hedge funds) who sold (part of) their oil futures, pushing the oil price down.

That said, focussing on fundamentals, we actually view the current oil price correction as a buying opportunity. Demand for oil remains very strong and still exceeds production (even considering the higher Russian and OPEC output), exerting further downward pressure on inventories. The Trump sanctions on Iran will probably remove between 800,000 and 1 million barrels/day from the market, Venezuelan production now stands at around 1.3 million barrels/day (down 600,000-700,000 over just a year) and continues to collapse. Angola is also losing production, while Libyan and Nigerian output is very unpredictable. On top of that, the growth in US shale oil production is hindered by a lack of pipeline capacity in the Permian area through at least the second half of 2019.

All told, assuming of course that President Trump will not push the world economy into recession by waging a full-fledged trade war, the risk of experiencing an oil price spike above USD 100 per barrel is greater than seeing it fall back to USD 50.

We are convinced that oil will sooner or later resume its upward trend and that this should be favourable for shale oil producers, even considering the headwinds they are currently facing due to the lack of pipeline and export capacity.

(update : 08.2018)

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