This May Be Your Last Chance to Buy Cheap Oil Stocks

 | May 15, 2017 | 11:00 AM EDT
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What a fine turn of events. For OPEC, it has always seemed that they were in control of everything in the oil markets, supply and price, for so many years. It was the weakness and occasional seeming incompetence of the cartel that often saved other producers from getting shoved into the background.

Indeed, this was entirely what OPEC again tried to do from 2014 until late last year, as they removed all price and supply controls, flooded the markets with oil and pushed prices downwards. They were attempting to bankrupt the upstart oil players, in particular U.S. shale players.

For two years, they tried to kill U.S. production, and only marginally succeeded. Today, U.S. oil production is nearing its record, with more than 9.2 million barrels a day being pumped on oil prices that wouldn't have economically permitted even 50% of that five years ago.

For OPEC, this is quite a change. In fact, they have been forced to restore production guidelines, even reaffirming today that they will extend their production cuts through the next six months starting in June -- with the unprecedented agreement of the Russians along for the ride.

This change of complete control on market stability is hardly to the benefit of U.S. oil companies. The lack of discipline that oil analysts used to equate with OPEC in the 1990s and into the 2000s has now turned to the U.S. oil producers in shale and in the Gulf of Mexico, pumping away at record prices even as their first-quarter results show that a good portion of that production is being done at thin, and sometimes even negative, margins.

It would be the best of all worlds for oil producers -- and for us as oil stock investors --if both OPEC and U.S. players could get on the same page in planning. Despite their innovations, U.S. oil companies and their stocks continue to languish, having so far continued mostly to slide as stock indexes continue to push for the skies.

A complete accord between all the oil producers, both outside and inside the U.S., is not possible, however. And, as investors, we are left in trying to decipher just how strong the OPEC deal within the cartel and with Russia will turn out to be, even as U.S. producers continue to open the spigots at full blast.

I, for one, have continued to write and advise a slow and steady commitment to oil stocks -- believing that not only is global rebalancing of the oil market an inevitability, but that the collapse of exploration capital for new oil resources will redouble an ultimate oil supply shortage at some point in the near future.

OPEC is certainly in agreement with me on this -- from their statement today and on other occasions. But recently another big trader also came around to agree with this position: Goldman Sachs, and its mastermind analyst Jeff Currie.

The "big if" in seeing the buys that you make now in currently cheap oil stocks pay off, is with the discipline going forward of OPEC members and Russia -- historically a very, very bad bet, one would have to admit.

Still, the stakes for these producers -- literally the balance sheets of their economies -- are far more critical than any other criteria they've ever had to face for not cheating on an agreement. And I believe it will hold throughout the rest of 2017.

That makes this perhaps the last chance to get some oil stocks at very, very cheap prices.

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