News

Get ready for the bull run in oil stocks

11 Jun 2009
Written by: Richmond Research

The collapse in the price of crude has caused companies to slash budgets and production – setting the stage for a shortage and rebound that should propel prices higher.

With oil rebounding to more that $50 for the first time since November, there is a growing consensus among industry analysts and investors that the stage is set for a multiyear rally that will propel stocks higher.

Worldwide demand will sink 1.6% this year.

Consumption is trending down, but analysts are projecting that supply will fall even further in the years ahead.

OPEC, desperate to keep oil above $50 per barrel, has been decreasing its output with a goal of cutting 4.2 million barrels a day. Virtually every major independent oil company has been slashing exploration budgets and slamming the breaks on new projects.

Oil companies have cut a total of $36 billion of planned capital expenditures over the past six months. When demand does rebound, supplies will be hard pressed to keep up. The Amex oil index currently trades at six times its earning for the past 12 months and has a dividend yield of 4%.