The Quiet Bull Market in Oil

Oil prices are up more than 20% from their recent low, which is technically a bull market even if investors aren’t all that bullish on crude these days.

Oil prices burst out of the gate this week, rising more than 3% on Monday. That rally pushed the U.S. oil benchmark, WTI, up to more than $52 per barrel, while the global benchmark, Brent, rose above $59 per barrel. For WTI, it was the highest close in five months, while Brent hit its best level since July 2015. What’s noteworthy about these moves is that they pushed oil 20% above its bottom in June, which means crude is now officially in bull market territory.

As I suspected they might, three factors fueled that rapid recovery: Sinking oil inventoriesaccelerating demand growth, and slowing shale supply growth. Those same catalysts could continue to push oil higher, especially if OPEC remains steadfast in its commitment to keep a lid on output. That said, while the market is pinning its hopes on OPEC, the wild card for higher prices is shale, which has become the new swing producer.

Drilling down into the data driving oil’s rally

Oil market fundamentals have rapidly improved over the past few months. According to the latest report from the International Energy Agency, oil demand grew by a much stronger-than-expected 2.3 million barrels per day last quarter, which is up 2.4% year over year. That led the IEA to upwardly revise its growth estimate for the full year.

Additionally, global oil supplies fell last month due to unplanned outages and scheduled maintenance. One of the other drivers was continued high compliance by OPEC on its pledged production cut, which has averaged 86% for the year. Add to that a slowdown in shale production growth as well as some turmoil in Libya, and the oil market cut even deeper into its inventory overhang. Those stockpiles had fallen to only 35 million barrels above the five-year average versus the 219 million barrels it was above that mark in the previous month.

Gloved hands holding a pipeline valve.


Shale: Rally killer, or will patience prevail?

As mentioned, another factor driving crude’s quiet rally has been some discipline from shale drillers. With crude slipping into the $40s, several drillers announced plans to curb their activities in recent months. The Eagle Ford Shale’s Sanchez Energy (NYSE:SN), for example, announced in July that “given the challenged current oil and gas price environment,” it would reduce its 2018 capital budget by $75 million-$100 million. One result of that budget cut was that Sanchez Energy would decrease its rig count this year, cutting it from the eight that were running at the time down to five by the end of September. Furthermore, Sanchez would slow down the pace of its well completions, which would push production out until 2018.

Meanwhile, the Permian Basin’s Pioneer Natural Resources (NYSE:PXD) tapped the brakes on its 2017 plans after running into some drilling issues. Pioneer chose “not to accelerate activity in order to catch up in the second half, especially in light of the current commodity price environment.” Instead, it cut $100 million from its drilling budget and would defer 30 wells into 2018. As a result, Pioneer’s production would grow closer to the low end of its 15% to 18% guidance range.

In addition to trimming spending to keep it aligned with cash flow, some larger drillers are allocating capital to buybacks instead of more wells. Anadarko Petroleum (NYSE:APC), for example, recently announced a $2.5 billion buyback. The company felt that the repurchase was a “very attractive use” of its cash because it could retire about 10% of its outstanding shares. That would enable Anadarko to accelerate its production growth on a per-share basis without adding any more oil to a still-saturated market.

If producers continue to exercise restraint and chose buybacks or balance sheet improvements over production growth, then it’s possible that the rally in the oil market can continue. However, if shale drillers quickly reaccelerate, it could keep a tight lid on prices.

Cautious optimism

The oil market has had its share of false starts over the past couple of years, so it’s no surprise that the recent bull run has practically gone unnoticed by investors. In fact, Pioneer and Sanchez have seen their stocks drop 6% and 25%, respectively, even as crude has powered higher over the past three months. That said, the fact that bigger drillers like Anadarko are starting to turn to buybacks suggests that producers plan to be more disciplined this time around. If that continues, and OPEC doesn’t waver on its commitment, the market could continue quietly moving higher, and should eventually take prudent producers up with it.

Newly released! 10 stocks we like better than Anadarko Petroleum
On September 8, investing geniuses David and Tom Gardner revealed what they believe are the ten best stocks for investors to buy right now… and Anadarko Petroleum wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

And when the Gardner brothers have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

See the 10 stocks

*Stock Advisor returns as of September 5, 2017

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This Stock Could Be Like Buying Amazon in 1997
Imagine if you had bought Amazon in 1997… a $5,000 investment then would be worth almost $1 million today.

You can’t go back and buy Amazon 20 years ago… but we’ve uncovered what our analysts think is the next-best thing: A special stock with mind-boggling growth potential.

With hundreds of thousands of business customers already signed up, this stock has been described as “strikingly similar to an early Amazon.com.”

To learn more about it, click here.

You May Also Like

Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Other Posts

Pandemic adds to worries about hurricane season

An above-normal 2020 Atlantic hurricane season is expected, according to forecasters with NOAA’s Climate Prediction Center, a division of the National Weather Service. The outlook predicts a 60% chance of

The difference between leading and managing

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Leadership and management are often misunderstood as one in the same. They are not. Certainly, a good leader should be able

Flattening the housing curve in a pandemic

By Josh Migdal In the classic film Groundhog Day (and yes, it is a classic), Bill Murray’s character wakes up over and over again in Punxsutawney, Pennsylvania, reliving the same

Putting Hate in its place

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Photography by Eduardo Schneider There are days, by his own admission, when the seemingly never-ending battles against hate, discrimination and extremism

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.