After hitting a high of $144.32 in 2008, oil plummeted 82% to a low of $26.05.

At the time, supply significantly outweighed demand.   

Storage levels in Cushing, Oklahoma were nearing full capacity increasing concerns the price of oil could come under intense pressure.  Millions of barrels of oil sat off the coast of the United States, as tankers were asked to remain idle at sea.

The U.S. domestic oil boom suffered.  Tens of thousands of jobs were lost.  Investors lost millions.

And oil found its bottom at $26.05 a barrel in February 2016. 

We knew that as the oil sector buckled under the pressure of low oil prices, we’d find undervalued gems that still had respectable fundamentals.   That’s why we recommended Helix Energy (HLX) at just $3.50 s share in the February 2016 issue of The Cheap Investor.  It would hit a high of $9.07 for a potential gain of 159%.

We also recommended McDermott International (MDR) at $2.97 a share in the March 2016 issue.  It would hit a high of $4.87 for a potential gain of 64%.

Oil Breaks $50… But can it last?

While many analysts projected $15 to $35 oil on a continuing surge of supply issues, not many forecast a potential supply deficit thanks to global outages.  Issues in Canada, Nigeria, Venezuela and other major production regions cut an estimated 3.93 million barrels a day from the market, according to a Reuters’ press release.

Canadian wildfires took about a million barrels offline, and military unrest in Nigeria reportedly has taken between 700,000 and 900,000 barrels.  In Venezuela, which is on the brink of economic and political disaster with mounting debt, has removed 178,000 barrels.

Internal conflicts in Libya have reduced oil supplies by up to 1.4 million barrels.  Iraq oil supplies have been reduced by 150,000 barrels, as well.

Source: Reuters

Internal conflicts in Libya have reduced oil supplies

However, as many analysts note, such outages are merely temporary, unlikely to offer long-term support for the above $50 a barrel price.

Global inventories still exceed 4.5 billion barrels. 

At the same time, overall demand is still lower than normal.  Meanwhile, Russia and Saudi Arabia are pumping near record levels, as Iranian supply comes back online quicker than anticipated.  Assuming most of the outages end, near-term, there’s a strong likelihood that oversupply issues will reemerge.

As we wait to see what happens next with production and supply, we can always enjoy the current gains of 64% and 159% to date with Helix and McDermott.  As we move forward, we’ll search for other oil-related stocks that can give us similar gains.

In fact, look for another oil stock in our June issue of The CHEAP Investor, which just came out.

Leave a Reply

Your email address will not be published. Required fields are marked *

Post comment