How Are Our Oil Stocks Doing?

It's a spectrum

The combination of a new US administration whose motto is “drill baby drill” and a potentially slowing economy hit the oil price pretty hard in the last few months of 2024.

Not surprisingly, the oil stocks in our portfolio have fallen in sympathy with the underlying commodity. So… is this a temporary cyclical squiggle, or a secular downtrend that’s existentially threatening for our oil companies themselves? Put another way, is this an entry point for these stocks or a sell signal?

Let’s start with the latest outlook from the International Energy Agency (IEA):

The decision by OPEC+ to delay the unwinding of its additional voluntary production cuts by another three months and extend the ramp-up period by nine months through September 2026 has materially reduced the potential supply overhang that was set to emerge next year. Even so, persistent overproduction from some OPEC+ members, robust supply growth from non-OPEC+ countries and relatively modest global oil demand growth leaves the market looking comfortably supplied in 2025.

World oil demand growth is set to accelerate from 840 kb/d in 2024 to 1.1 mb/d next year, lifting consumption to 103.9 mb/d in 2025. Increases in both years will be dominated by petrochemical feedstocks, while demand for transport fuels will continue to be constrained by behavioural and technological progress. While non-OECD demand growth, notably in China, has slowed markedly, emerging Asia will continue to lead gains in 2024 and 2025.

Translated into everyday English: Both supply and demand for oil will rise next year, so the market is more-or-less in balance with few shocks likely in the near term. (Though of course if someone starts bombing Iran’s energy infrastructure, that will change in a matter of minutes.)

How are our Portfolio’s oil companies doing?