The trade war with China has caused investors to overlook catalysts for firming oil prices and put another chill in oil stock prices. The trade war will end eventually. In the meantime, China is stimulating and the U.S. Federal Reserve is about to end QT – Quantitative Tightening.
Catalysts for rising and firming oil prices the next 12-18 months include:
- Iran sanctions enforcement
- Potential escalation of the Middle East conflict (as I discussed President Trump validating Iran conflict thesis)
- Venezuela and other oil production disruptions set to last at least a year
- Shale production growth slowing for financial and technical reasons
- Lack of EV penetration until the early-to-middle 2020s
When Occidental Petroleum (OXY) took Anadarko (APC) from Chevron (CVX) with a better bid, it should have woken investors up to a pair of facts. First, consolidation in the oil patch to create scale and costs synergies is kicking into overdrive. Second, the most desirable companies to purchase or merge with have significant Permian acreage.
Use this pullback to buy these 5 Permian “pure plays.”
M&A Will Pivot On The Permian
The Permian Basin is the key oil shale field in America. It accounts for over 75% of American production growth overall (with Gulf of Mexico accounting for most of the remaining) and virtually all of shale production growth. The Permian is where the best assets are. Other shale assets are merely add-ons to Permian assets.
The STACK/SCOOP in Oklahoma, Powder River Basin, Eagle Ford and Bakken are secondary plays at this point. The Niobrara is a mixed bag, with Colorado assets potentially becoming lost reserves.
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