A Small Cap Opportunity on an Oil Recovery

February 14, 2019, By fierceinvestor,

Oil prices have been cut in half.

All thanks in large part to oversupply, trade war fears, and a stronger dollar.

However, according to Goldman Sachs, oil prices could swing higher.

“Core-OPEC producers are adopting a shock and awe strategy, and exceeding their cut commitment,” says Goldman Sachs, as quoted by Bloomberg. “Disruptions have increased with risks that Venezuela’s production decline accelerates following the introduction of additional U.S. sanctions related to the Venezuelan oil industry. U.S. producers are also so far guiding towards restrained shale production growth.”

In addition, Goldman Sachs also points to improvements in oil inventories.

For example, the American Petroleum Institute (API) just reported that inventories fell by 998,000 in the week ending February 8 2019, as compared to expectations for a build of at least 2.7 million barrels.

Another catalyst — Saudi Arabia Energy Minister Khalid al-Falih said production would fall below 10 million bpd in March 2019.  That’s 500,000 bpd below initial targets.

Stocks to Watch on Oil Recovery

Should we see further progress, we believe oil could push back to $77 – which could fuel a sizable rally in aggressively oversold oil names. You may want to consider Marathon Oil (MRO), Laredo Petroleum (LPI), Exxon Mobil (XOM), Devon Energy (DVN), Chevron (CVX).

As for small-cap oil opportunities, keep an eye on Laredo Petroleum (LPI), for example.

With solid fundamental growth and a growing position in the Permian Basin, we believe Laredo Petroleum could see higher prices and become a potential acquisition target.  In our opinion, LPI is in a great position to do well with exposure to the U.S. oil production boom with an established position in one of the hottest U.S basins.

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