Strategy Blog


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How Slowing U.S. Oil Production is Impacting Our Investment Strategy

Highlights

This post provides additional information or updates to our existing investment strategy. Most recent post(s):

  • Recent Events And Deeper Understanding Of Global Oil Market Suggest Continued Downward Pressure For Oil Prices.

This is our macroeconomic view providing the top-down perspective for our consumer discretionary sector investment strategy.

  • US production is showing signs of declining
  • U.S rig count continues to fall
  • OPEC, Russian production, Fracklog (ability to bring U.S. production online quickly at higher prices) still remain negative headwinds on the price of oil.

Closing in on a change in one of our oil price strategy signposts but still too early for us to act.

Research & Analysis

1) U.S. Production

 

There is an indication U.S. production companies are finally at capitulation. We are starting to see the uptrend falter and, while still early, a down trend possibly beginning to form.

 

 

2) Rig Count

 

One reason we expect production to decline is the U.S. rig count. According to Baker Hughes, the count is now at 640. Rig counts are still going in the right direction - a good sign for more potential production decreases.

 

Current Strategy

Long-term Investment Strategy

  • HOLD companies with sustainable dividends, low debt/equity ratio and an appetite for hedging.

Triggers for Strategy Change

  • OPEC collectively meaningfully reduces production
  • Meaningful lower production in U.S. and/or Russia
  • Meaningful higher global consumption rates
  • Improved company income statements (generated by lower expenses)
  • Changing sustainability of dividend policy (for existing or new programs)

Categories

Type: Investment Strategy Thesis

Geography: Canada, US

Sector: Energy

Sub-sector: Oil Producers

Area(s) of Analysis: WTI, U.S. Oil Production, Baker Hughes Rig Count

 

 

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