I couldn't have been any clearer if I used a sledgehammer: The time is now and fast-escaping for you to get into quality oil exploration and production stocks for the long haul. Those who have continued to be bearish about oil prices that are still in the $40s are being proven totally wrong in their outlook and timing -- and we're being proved right in ours.
Today Goldman Sachs recanted its bearish oil stance, noting that the oil market won't wait for gluts to clear and recognizing (late) that current demand is exceeding supply. Goldman notes the Nigerian outages for its change in outlook, but please -- Nigerian oil outages are a staple of the global supply chain, as were the short-term fires in Canada that briefly halted oil sands production. Whatever the note from Jeff Currie says, the upshot is clear, Goldman is now bullish.
Again Capital's John Kilduff was wrong in thinking that Iranian increases in supply would put the kibosh on the oil rally. It is now clear (as it was to me at the time) that the Doha OPEC disaster, the replacement of al-Naimi as Saudi oil minister and the Saudi threat of a 2-million-barrel-a-day increase in production was little more than posturing.
Iran has quickly accomplished what it can; adding about 400,000 barrels a day to global supply and less capable of adding much more while the Saudis are as close to full production as they can get without a huge new influx of capital expense is clearly not where their thoughts are headed right now considering the outline of their new "30-year plan."
Market observer Dennis Gartman was completely wrong about oil -- first about it leaving the scene and going the way of "whale oil," then predicting it wouldn't trade above $44 in his lifetime, and then assuring us that alternatives would be quickly approaching that we needed to prepare for. The International Energy Agency (IEA) has once again revised its demand numbers for 2016 and beyond, and no surprise, the numbers have all gone up. The projected increase in demand for 2016 oil has been raised by 1.5 million barrels a day compared to last year, with similar implied hikes for 2017 and 2018. Does that sound like the profile of a fuel going the "way of whale oil"? It now looks like the next five years might show the greatest demand acceleration the world has ever seen.
Other analysts were incredibly wrong in thinking that every oil price rise would be met by a fresh influx of capital and wash of new production from U.S. E&Ps. The $20 rise in oil's price has done nothing to stop the bankruptcy filings of Linn Energy (LINE) and SandRidge Energy (SD) -- two oil companies I predicted last year were destined for restructuring. And the next $20 rise in oil prices won't help much either, as those companies are still suffering with overleveraged balance sheets and acreage can't breakeven without at least a $75 oil price.
We have known that the fantasy of $35 breakeven prices, touted by virtually every shale player, was achieved using funny math that took drilled but uncompleted wells (DUCs) as sunk costs -- a ridiculous accounting method of true completion costs to get a barrel of oil out of the ground. With bankruptcies accelerating, the market is realizing that all of those keen recapitalization tricks have reached their limits and those that cannot survive on the basis of a quality balance sheet and prime acreage won't survive -- no matter where oil prices head from here.
The stock market does seem currently biased to the downside, but oil stocks are certainly not. If nothing else, there is a keen moment here -- a short one -- to rebalance portfolios toward energy stocks. No matter where the overall indices go, it seems clear that energy is now poised to lead for a long time to come.
NOTE: Thursday's column will be devoted to reader requests. Please send me you stock names and I'll give you my opinions on them: Buy, sell or hold. Dan.dicker@thestreet.com
