In 2015, oil stocks have taken a huge hit, with the market-wide decline caused by weak consumer demand, weaker corporate profits, rising dollar and record production from the US. As of September in the said year, oil stocks were seen to hit their bottom, so with this in mind, it would be a perfect time to invest for a good entry point into the diving stocks.
Particularly, it was said that stocks will benefit from a rebound in crude oil, which is the underlying commodity that drives oil prices. In fact, its massive global production has led to a 50% drop in oil prices from its 2015 peak, with the oversupply having caused oil companies to cancel or delay, causing a drop in their performance. But while the global production of crude oil had exceeded its demand by roughly 2 million barrels per day—with major domestic energy companies slashing their exploration budgets due to overproduction—the ratio is expected to adjust, with supply expected to decline this year.
Now the crude oil demand is forecast to increase by 1.1 million barrels per day this year, which will close the supply and demand gap, resulting in firm oil prices. With the increase in demand and slashing of supply, the re-balancing of the oil industry will start to work, benefiting oil stocks. The rise in the prices of such a commodity will coincide with better performance in the industry, and the previous low prices in stocks will provide investors with the opportunity to purchase at a bargain.
It is worth noting that the energy sector is a proven leader during the bull market cycle closes in the equities industry. As the S&P 500 increasing every year since 2009, with people thinking that the market is coming to an end of its cycle, we can just assume that the sector would soon perform better as a whole.
Recently, analysts were upgrading a lot of oil stocks from holds to buys, with investors seeking income investments also interested in the attractive dividends oil stocks would yield. The drop in oil stock prices has resulted in increased dividend yields, which are expected to remain high. All in all, the petroleum industry is in the middle of bottoming out and recovery, which makes it a good time for you to buy oil stocks.