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.
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)
Type: Investment Strategy Thesis
Geography: Canada, US
Sub-sector: Oil Producers
Area(s) of Analysis: WTI, U.S. Oil Production, Baker Hughes Rig Count