What Are the Oil and Gas Investors Doing?
The Oil Drop In a Nutshell
Many reports attribute the current state of the market to decreased global demand for oil, coupled with swelling shale oil production in the U.S. These factors have created major stockpiles, driving prices down. If oil production stays the same or increases (as it is currently), prices will continue to plummet as inventory stacks up. And oil and gas investors are taking note.
Why Investors Are Interested
According to a recent report in the Wall Street Journal, energy producers in the U.S. and Canada have sold more than $8.4 billion of new stock since January—quickly outpacing last year’s total sales of $10.5 billion. This could be attributed in part to the encouragement of analysts. According to a CNN Money report, experts are advising investors to buy despite the expected market effects of alternative fuels. The report points out that the market influx of fuel-efficient and alternative fuel vehicles and other technologies will likely curb oil consumption in the developed world; however, even the most conservative estimates suggest that, to meet the demand from these changes, oil production needs to increase by 10 million barrels per day by 2030. Some less conservative estimates suggest the need for additional production up to 25 million barrels per day. Obviously, the cheap prices are attracting some oil and gas investors. But others are hoping to keep creditors at bay by supporting investments in existing companies.
What's the Outlook?
Bloomberg reported that oil stockpiles climbed to 449 million on March 11—a 4.5-million-barrel increase. They also said oil production continued its ascent for the fifth consecutive week, reaching a 9.37-million-barrel-a-day rate—and this is amid unprecedented numbers of shutdowns on oil-drilling rigs. If the dollar continues to climb, crude oil prices could continue to plummet. According to estimates by Moody’s Analytics, about 15 percent of the decline in oil prices is attributed to the appreciation of the U.S. dollar. This means persisting low prices could draw in oil and gas investors for some time.
However, in a recent Bloomberg article, hedge fund manager Dan Loeb warned oil and gas investors against acting haphazardly on the expectation of great profits to come: “We’re not really playing a credit game […]. We’re not really playing a spread game, as much as we are playing special situations where there will be more significant moves.”
Here at Lyall, we like to keep a finger on the pulse of the industry from both financial and environmental standpoints. To learn more about what we do, visit our Company History page.