Oil Stocks Look Attractive as the Market Enters the Boom Cycle

03/08/2016 7:00 am EST

Focus: STOCKS

Phil Flynn

Senior Energy Analyst, The PRICE Futures Group

Bullish developments have caused the price of oil to continue to move higher and Phil Flynn of The PRICE Futures Group discusses why investors should start looking at oil stocks as the market exits the bust cycle in oil and enters the boom cycle.

The price of crude oil prices continues to move higher as rig counts continue to crash and hedge funds become bullish. Oil producers are cutting spending like crazy and even some hawkish OPEC producers are mentioning the cut word. The market is getting more bullish as the damage caused by low oil prices becomes apparent and forces the market to look beyond the current glut to a world with falling production. The bulls have regained control of the oil market which is up 40% from its 2016 lows.

Baker Hughes (BHI) reinforced the pain that producers are feeling after reporting that energy companies cut the number of active oil rigs by 8 which is the 11th week in a row that rig counts fell. If you throw in oil and natural-gas rigs, the number of rigs fell by 13 to 489, just above the record low of 488 rigs in 1999. If we fall below that number, then the number of rigs in operation will fall to the lowest level since the US civil war.

Dow Jones is reporting that the U.A.E. energy minister is saying that low prices are forcing oil producers to freeze output and that prices will recover. In fact, the United Arab Emirates energy minister Suhail al-Mazrouei said, there is daily evidence the oil glut is decreasing while demand is solid. Mr. Mazrouei said the U.A.E., a member of the Organization of the Petroleum Exporting Countries or OPEC, hasn’t received an official invitation to attend a meeting mentioned by Nigeria’s minister of state for petroleum resources of some OPEC members and other producers, including Russia, on March 20 in Moscow. But U.A.E., is always cooperating with non-OPEC and if there is a unanimous decision to meet among the majority members of OPEC we will meet.

Trilby Lundberg, the queen of gasoline, reported that the average oil price for gasoline has increased 7 cents in the last couple of weeks to $1.84 a gallon. Trilby told the AP that the moderate price hike is due to growing demand for gasoline across the nation and higher crude oil prices. However, even after the price increase, gasoline remains 70 cents a gallon cheaper compared to one year ago. Los Angeles had the highest average price of regular gasoline at $2.51 per gallon, among the lower 48 states. Tucson, Arizona had the lowest with $1.33 per gallon.

The average diesel price in the U.S was $2.07 a gallon, which is less than one cent down compared to two weeks ago. The price is 96 cents per gallon down if compared to one year back.

We have been saying for some time to look beyond the current glut and look at the big long term picture. The bust cycle in oil is underway and the next phase is the boom cycle. Start getting positioned.

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By: Phil Flynn of The PRICE Futures Group

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