Hitting a high of $144.32 in 2008, oil slipped 82% to $26.05 just eight years later.
Why? Supply outweighed demand.
Storage levels at Cushing (the world’s largest crude oil storage facility) neared full capacity, renewing concerns the price of oil could come under intense pressure.
The U.S. oil patch suffered, and tens of thousands of jobs were lost.
Investors, insiders, and billionaires bet on the upside – calling for higher oil prices along the way – lost millions.
Yet, despite the supply-demand story, something interesting happened.
Oil found its bottom.
Since mid-February 2016, oil rallied 60% to 2016 highs of $41.74, confirming our January 2016 call to “run in the other direction and at least begin to accumulate” quality oil stocks.
That’s why we recommended Helix Energy (HLX) at just $3.50 a share in the February 2016 issue of The Cheap Investor. It hit a high of $6.50 for potential gains of 86%.
We also recommended McDermott International (MDR) at just $2.97 in the March 2016 issue. It shot to a high of $4.44 or +50% from our recommendation a few weeks ago
It’s been exciting to watch the volatility, as we near the April 17, 2016 Doha meeting on production freezes.
In fact, over the last few weeks, analysts have expressed a great deal of optimism that the OPEC Doha meeting on freezing production would yield higher oil prices. Traders have bid crude oil prices upward in anticipation
But that’s just part of the reason oil has rallied.
While short positions in oil jumped 35% in the first week of April, inventories have been fallen. In fact, the U.S. government just reported a 4.94 million-barrel drop in inventories– its first drop in about eight weeks.
U.S output is also on the decline after $100 billion in spending cuts. U.S oil production has been steadily falling to 8.5 million barrels a day since peaking at around 9.7 million in 2015.
Unfortunately, that news is overshadowed by Iran’s increased output of 3.2 million a day, and Iraq’s 4.16 million production…
But there’s hope that can be curtailed as the market expects OPEC and non-OPEC nations to proceed with plans to freeze production at January levels.
Unfortunately, as Saudi Arabia’s Deputy Crown Prince has noted, any freeze depends on Iran, which has notably rejected curbs on its own output post-sanctions. In fact, Iran has already announced plans to raise output from 3.2 million barrels a day to four million by March 2017.
Russia is looking to broker an agreement that either grants Iran an exemption, or offers Iran a “graduated production ceiling that accommodates production increases but requires reciprocal guarantees from Iran that it will smooth oil exports,” as noted by Forbes.
Whatever the case, investors are bracing for a Doha meeting that could make or break the latest oil rally. If a deal is reached, oil could rally further. However, if the can is kicked down the road again, oil could easily pull back to $35.
We have to prepare for whatever may happen.
In the meantime, we can enjoy the potential gains of 86% and 50% we’ve racked up to date – further proof we’re able to jump into undervalued stocks before everyone else wakes up and realizes they missed the “all clear.”