For Immediate Release
Chicago, IL – October 08, 2015 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Marathon Oil Corp. (MRO), SM Energy Co. (SM), Chesapeake Energy Corp. (CHK), Weatherford International plc (WFT) and Denbury Resources Inc. (DNR).
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Here are highlights from Wednesday’s Analyst Blog:
Has OPEC Already Won the Crude Oil War?
Abdullah al-Badri, Secretary-General of the Organization of the Petroleum Exporting Countries (OPEC), foresees an improvement in the oil market due to an increase in demand for its crude oil and a slowdown in production growth from non-OPEC nations. OPEC’s strategy of increasing its market share seems to be working.
Looking Back
Last November, OPEC decided against an oil production cut despite people expecting it. Had the organization lowered its production the decline in crude prices could have been arrested. However, the cartel’s decision to maintain oil production level, in order to maintain and expand its market share against the non-OPEC members, has added to the woes.
OPEC members contribute nearly 40% of the global oil supply. Also, the 12 member nations of the cartel control about 75% of the world's total proven crude reserves. As a result of OPEC’s dominance over the worldwide crude market, the commodity price is strongly impacted by the cartel’s announcements and movements.
West Texas Intermediate (WTI) crude, which had been trading at over $100 per barrel in Jun 2014, started to decline in the second half of the year owing to oversupply. Following OPEC’s disappointing announcement, crude prices plummeted and closed the year around the mid-$50s. So far, no improvement has been witnessed this year either. In fact, the commodity fell to a six and a half year low of $38.22 in August.
OPEC’s Outlook: The Road Ahead
Referring to a question about market recovery asked during the Oil and Money conference recently held in London, Badri said that the price slump is unlikely to last much longer. He mentioned that the scenario is likely to improve in the next two years.
Also, the official urged non-OPEC nations to help deal with the supply glut, which he anticipates to be about 200 million barrels. Badri believes that OPEC and non-OPEC nations need to work together to solve the problem of oversupply. He also invited non-OPEC nations to attend a technical meeting on Oct 21, 2015 that will address these issues.
The Secretary-General believes that production from non-OPEC countries will either remain flat or see a decline in 2016. This is due to a cutback in investments from the exploration and production firms. Per estimations, worldwide investment in petroleum products is expected to witness a yearly decline of about 22.4% in 2015.
Following the shale revolution, U.S. production had challenged OPEC’s market but the tide seems to have turned. Though shale production remains pressured by the weak crude prices, demand for OPEC production is expected to see a year-over-year increase of about 1 million barrels per day (bpd) to 30.3 bpd in 2016.
Not All Glitters for OPEC
Considering the present state of shale producers (several smaller players are out of business, while others are adopting mergers as a means of survival), OPEC’s strategy of expanding market share can be considered to be successful to a large extent.
However, the pricing war has taken a toll on OPEC members as well. Saudi Arabia, the strongest OPEC member, issued bonds worth $5.33 billion to sustain its spending program. According to media sources, the country will run out of cash by 2018 if crude continues to hover around $40 per barrel.
Iraq, another OPEC contributor, has also found troubles on the home front. Last month, the Iraqi oil ministry issued warnings to international energy firms operating in the region regarding its plans to cut spending next year. Iraq owes several billion dollars to international energy firms that develop its fields.
Market Cheers
The energy industry has been witnessing tough times for quite a while now. Hence, any positive development, however small, draws cheer from the investors.
OPEC’s intensions to discuss problems with non-OPEC nations, Russia’s willingness to cooperate with OPEC (the country had previously refused) and declining rig count data, all drew favorable responses from the market. WTI prices gained about 5% to close at $48.53 on Oct 6.
Several big companies from the energy space like Marathon Oil Corp. (MRO), SM Energy Co. (SM), Chesapeake Energy Corp. (CHK), Weatherford International plc (WFT), Denbury Resources Inc. (DNR), to name a few, gained over 5% following these positive developments.
Don’t Throw Away Caution
Though these positive tidings brought cheers, they may not be long lived. Crude prices are anticipated to remain weak for a greater part of 2016. Though investment cuts will curtail production, the process will be slow. Til the crude prices recover and stabilize, the energy industry remains a volatile one and may not be the best place for the risk-averse investor.
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Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today. Find out What is happening in the stock market today on zacks.com. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report MARATHON OIL CP (MRO): Free Stock Analysis Report SM ENERGY CO (SM): Free Stock Analysis Report CHESAPEAKE ENGY (CHK): Free Stock Analysis Report WEATHERFORD INT (WFT): Free Stock Analysis Report DENBURY RES INC (DNR): Free Stock Analysis Report To read this article on Zacks.com click here.
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