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Summary Recent market action seems disconnected to fundamental reality and overly fixated with the near-term outlook. Unlike 2015-16, the recent oil price correction mainly the result of a strategic miscalculation by OPEC to reverse 2016 production cuts too quickly. A consequent correction in oil price and energy equities may further depress global capital investment exacerbating medium-term supply risks. Continued demand growth implies either much higher service activity in the years to come or an eventual supply deficit and much higher oil prices. As a result, it is not possible or rationale for market participants to have a negative view on both energy producers and oil service companies concurrently. In this article we will review the current state of the global oil (NYSE: USO ) market taking into account some of the latest data and developments since we last covered the sector about six months ago. We will then discuss the recent severe correction in the oil price and implication for the equities of oil producers (NYSE: XOP ) and oil service companies. Specifically, we will highlight what we believe is at present an extreme disconnect in investor or market perceptions. Broadly speaking, we will outline why we think this […]
