Nevertheless, our outlook has called for natural gas to remain volatile but range-bound, as spikes toward $3 per million British thermal units (mmBtu) will sow the seeds of their destruction by incentivizing production growth and prompt electric utilities to switch from gas to coal. Conversely, moves below $2 per mmBtu will encourage demand and prompt exploration and production companies to slow their drilling and completion activity.
Every earnings season, companies in the oil-field services industry highlight emerging technologies that can help upstream operators to improve their well productivity, boost operational efficiency and reduce per-barrel production costs. The current trends and new techniques are perhaps more important than ever given current prices.
For some time, mining companies thought diversifying their portfolios was the best way to improve cash flow stability and protect themselves from natural resources cycles and increased volatility. That hasn’t worked, at least not as expected.
Industry consolidation and recent pipeline approvals are encouraging developments for Canada’s oil-sands operators, but investors should continue to focus on quality and only buy when the price is right.
In an environment where oil prices range between $40 and $55 per barrel, North American short-cycle plays will remain the growth engine for the oil-field services industry. Investors might want to consider nibbling on select US-focused service names while keeping some powder dry in case oil prices swoon once again.
US oil production appears to be bottoming, but investors seeking to profit in an environment where prices will likely range between $40 and $60 per barrel must pay attention to basin-specific trends as well as companies’ balance sheets and acreage quality.
Mining stocks have moved to a momentum-driven phase, a change that suggests it’s time to close positions and book profits. In the meantime, oil prices and global growth are two critical factors when considering new investments.
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