SubscribeLack of Investment Will Lead to Higher Oil Prices
Oil companies are slashing new investment and production far more sharply than analysts projected just a couple of months ago, a strategy analysts say could lead to shortages and higher gas prices when consumption rebounds. And, analysts say, a standoff between the oil giants and their suppliers over the cost of rigs, labor and other expenses could prolong the investment slowdown.
"The turnaround will probably come faster than people expect, and the supply won’t be there," says Joseph Stanislaw, an adviser to Deloitte’s energy practice.
Oil companies are shaving exploration and production spending 18% this year, including a 40% drop in the U.S., according to new estimates by analyst James Crandall of Barclays Capital. In December, the firm said budgets would fall 12%, 26% in the U.S. Drilling in the U.S. is down 39% from its September peak.
My comment: Its hard psychologically to buy oil stocks at this level but if you understand the long term fundamentals then I do not see how an investor can go wrong at these levels. When I say long term I am talking about 3-5 years. Depletion will continue at 6-7 % per year and if the necessary investment is not made supply will decline.
John Polomny
The Real Deal
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