Opinions about the direction of oil prices have swelled since the cost of a barrel of crude came tumbling down to nostalgic, pre-2005 levels over the past 20 months, and bigger investors played the trend in varying ways – but with some distinctive traits.
The price of European Brent crude fell approximately 76% from June 2014 to a trough in January of $27.76 per barrel. Data on Monday would suggest that investors feel more positive about the commodity’s outlook, as oil futures surged almost 4% to a three-month high of $40.26 for Brent crude.
Crude oil supply, one of the salient contributors to the price collapse, remains high. In the final week of February, U.S. crude oil inventories increased by 10.4 million barrels to 517.98 million barrels, the highest on record.
According to the U.S. Energy Information Administration: “Several factors have played a part in pushing U.S. crude oil prices below $30 per barrel (b), including high inventory levels of crude oil, uncertainty about global economic growth, volatility in equity and nonenergy commodity markets, and the potential for additional crude oil supply to enter the market.”
The low oil prices will eventually shrink the supply, however. Though actual inventories remain high, oil companies have cut their investment in production by 35%, the second biggest drop since 1948, which became apparent in the fourth quarter.
“Low oil prices remain a major factor in oil exploration and production firms' decisions to reduce capital expenditure,” the EIA sad in February.
“Fourth-quarter earnings statements from U.S. oil companies indicate plans to further reduce capital expenditure to balance spending with lower cash flows until crude oil prices increase enough to make investments economic. These oil-company reductions could continue to put downward pressure on investment spending in the broader U.S. energy sector.”
Later in February, global forces relating to oil prices had a development that helped moved prices up: Russia and Saudi Arabia agreed to a production freeze. Yet no one knows what will happen when the freeze ends or how long it would take for the freeze to meaningfully reduce supply storage.
Some investors took high-profile stake in the industry in recent quarters, with some possible starting to buy too early last year, and some starting to build up their exposure to the sector more recently, such as Warren Buffett (Trades, Portfolio) taking a position in midstream company Kinder Morgan Inc. (KMI, Financial) in the fourth quarter.
Observing the portfolios of 147 of the most-followed financial managers, the following chart shows their buying activity in the oil and gas industry in the fourth quarter.
The chart shows that oilfield services companies Schlumberger (SLB, Financial) and Halliburton (BHI, Financial) dominated buying in the quarter, as the first and third most-bought stocks, respectively, among the group of investors. A Texas independent oil and gas exploration and development company, Range Resources (RRC, Financial) attracted the second most attention.
(Purple: >20%; Green: 10-15%; Blue: 5-9.9%; Red: 1-4.9%; Tan: <1% portfolio weight)
There was less correlation between companies bought in the fourth quarter and companies already held. While Schlumberger gained the most buyers, Philips 66 (PSX, Financial) had the largest representation in collective portfolios at 20.2% versus 14.9%. Also, though a group of stocks saw six buyers, Cameron International (CAM, Financial) had the least representation in portfolios at 0.9% in total.
Further data, from the Industry Trend tool, also showed an interesting point: The group overall were net sellers of oil stocks in the quarter. With buying and selling occurring in each industry of the sector, in each case investors reduced their exposure.
Their greatest industry shedding was in exploration and production companies, where they pared company holdings by 17 overall. The sector where selling outweighed buying the least was in integrated oil and gas companies. The most-sold energy stock, Exxon (XOM, Financial), also came from this sector, with 13 in the group reducing their holdings.
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