With President Obama pocketing key Republicans for another
round of Middle Eastern déjà vu, the oil bubble is slowly
building up. Any chance of a bust seems unlikely with the Obama
administration focusing on pooling international support for
military measures in Syria over its alleged use of chemical
weapons. Moreover, higher demand from emergent economies across
the globe is adding to the price pressure.
Our apprehension is fueled by the clouded outlook on a number of
key oil producers round the globe. On one hand we have the Syria
issue, on the other there's Libya with its domestic turbulences
and the resultant fall in output. Egypt too offers no promise
with oil majors like
) knocking for their billion dollar dues.
The oil companies smarting under low prices see this as a solid
scope to recover the highs seen in the heydays of 1970s. Also,
any disruption in the Middle Eastern geopolitics will take a
major toll on import dependant emerging nations like India and
The direct fallout of the Syrian military buildup was the
spike in Brent crude prices which hovering around $115 per barrel
has witnessed steady rise over the past three months. Fearing
large scale geopolitical disturbances in the coming days, players
) have already announced the sale of a third of its Egyptian
assets to focus more on onshore U.S.
APACHE CORP (APA): Free Stock Analysis Report
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MATADOR RESOURC (MTDR): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
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West Texas Intermediate (WTI), aided by multiple crude oil
transportation systems in recent times has witnessed lower
inventory bottlenecks. The WTI price is currently trading for
around $108 per barrel.
In such a scenario, we believe any military action in Syria by
the U.S. will push up Brent price to around $124 per barrel in
the near term. However, WTI price - helped by infrastructural
developments alongside higher production from unconventional oil
and gas plays such as the Bakken, Eagle Ford and Marcellus shale
- would remain largely insulated from the oil spike. Also, recent
macro economic data in the form of lower unemployment numbers,
receding weekly jobless claims, and Q2 productivity data are
painting a positive picture for the U.S. economy.
As such, we foresee a purgatory of widening spread between Brent
crude prices and WTI to affect the health of the global economy.
This has come at a time when U.S. investors are scrounging for
yield in the face of rising Treasury yield, and the North
American energy boom.
Here domestic exploration and production players with a Zacks
Rank #1 (Strong Buy) like
Matador Resources Co.
Range Resources Corp.
) offer a window of opportunity for investors looking to avoid
the oil spread purgatory.