Energy Bulls Must Be Patient and Picky
High-quality E&P bargains can be found today, but investors must be prepared to face new lows in the short term and seek out firms that can weather extremely challenging conditions.
David Meats: Going into 2016, the key question for energy investors is how long will it take for the oil industry to work through the current period of oversupply and rebalance itself? We are bullish on oil prices recovering long term to our midcycle estimate of $70/bbl for Brent and $64/bbl for WTI. But unfortunately, we don't anticipate a quick rebound.
Current supply imbalances are such that oil production, as of today, is effectively running two years ahead of demand. Declining U.S. oil production over the next several quarters should bring supply and demand back into balance during 2016, but it will take longer than that to work off the excess inventory that has been piling up in the last twelve months.
Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.