This weekend, Doha in Qatar will host several OPEC and non-OPEC members to discuss whether they can agree on a production cut that will stick. What's going to happen there and what will it do to oil prices and our oil stocks?
The recent history of meetings among oil-producing nations, including full OPEC meetings, has been nothing but bleak for the past two years. The inability to find agreement on a production cut in November 2014 caused oil prices to skid below $80; similar ineptitude at a meeting in December 2015 caused oil to skid further below $30. There is good reason to expect little from the meeting this weekend.
Except the prospects for an agreement this time, most significantly between the Saudis and the Russians, is quite good. Indeed, the proposed "freeze" limits on production among the participants at Doha is already 400,000 barrels a day above what is being produced right now -- it is an easy target to meet, particularly because both the Saudis and Russians have few prospects to increase production in the near future.
So, Doha will most likely be a success -- but will this translate into instant profits from our oil stocks? I'm not nearly as sure. Much of the optimism from Doha is, I believe, already in the market, with oil rallying again above $42 a barrel. And as numerous as the signs are that oil markets are rebalancing, there are still months of gluts waiting to be drained. Speculative oil positions have gone bearish, assuming both the toothless nature of the Doha meetings and bearish expectations in upcoming crude and distillate stockpiles.
So, as always, the question remains: What to do now? I stand completely by my timeline that I laid out in my book, and believe that oil prices become seriously constructive in the third quarter of 2016 and believe truly that oil will see triple digits by the end of 2017.
But more importantly for today, I believe the chance that oil and oil stocks will again swoon down to levels we saw in February is, frankly, nil. The move that speculative players are banking on after the Doha meeting, if it comes, will be short and the last trip down.
Therefore, you'll likely need to pay up a little for stocks, if you're not already in. Some of my favorites are, in my view, overpriced at this point in the cycle -- EOG Resources (EOG), for example, could have been added to positions closer to $70 little more than a week ago. Today it's at $78. Cimarex (XEC) similarly priced at $95 on April 4 now trading $107, and Hess (HES) has moved from $50 to $57.
We could get more speculative, as we did earlier in March -- and look for a negative response from the meeting while targeting higher-beta names: We could look to buy Anadarko (APC), for example, closer to $45, Devon (DVN) at $27, or Apache (APA) -- which has truly rallied spectacularly from its lows -- we could seek under $50.
None of these would qualify as core holdings for me, but they certainly have proven their worth in any kind of midterm oil rally, which after the Doha meetings, I believe we're ultimately going to get.
The important point is to get cracking and start rotating into energy shares -- if you haven't begun already. This weekend's meeting and its outcome could generate one of the last chances you may have to find value.