When Will Oil Stocks Recover?

A brief rise in oil prices was aborted when the American Petroleum Institute reported that stocks of oil in the USA rose by six million barrels last week. Reuters reports how a brief oil rally was cut short.

Brent crude oil fell by almost $2 on Wednesday after a new build in U.S. crude stock levels put a global glut back in focus, cutting short a four session rally that pushed prices up to a high of $59 on Tuesday.

The recent rebound had increased speculation that prices may have hit a bottom, after a seven-month rout slashed oil futures by nearly 60 percent and prompted major energy firms to cut spending on new production.

But a report from the industry group American Petroleum Institute showing U.S. crude stocks rose more than 6 million barrels last week pushed prices down on Wednesday.

Both the price of oil and the prices of oil stocks have fallen dramatically in the last six months. When will oil stocks recover? It all has to do with the law of supply and demand. And for the time being demand is falling due to economic stagnation while supply is plentiful.

How Bad Has It Been for Oil Stocks?

The Motley Fool writes about a $393 billion wealth wipeout.

The impact from the plunging price of crude oil is sending shockwaves across the globe. Nations dependent on oil production, like Russia, Venezuela and Saudi Arabia, have witnessed plummeting revenue that is pushing some to the brink of recession.

At the same time oil consumers, like American drivers, are rejoicing thanks to the saving being enjoyed at the pump. However, for many those savings at the pump are being wiped out as retirement and investment accounts are taking a hit from the big blow oil stocks have taken over the past few months. So far, downturn in the oil market has cost investors $393 billion in wealth, according to a report by Bloomberg, which is far above the $14 billion American drivers saved at the pump last year.

The sum total of value that has evaporated with the fall in oil prices and stock values runs close to $400 billion. The issue is, again, supply and demand. When the economies in China, Japan and Europe come back the demand for oil will go up and the price will go with it. When will oil stocks recover? They will come back when investors come to believe that a recover is imminent.

Buying on Anticipation

When oil stocks recover those who profit the most will be investors who successfully anticipate the recovery and buy when stocks are still cheap. We saw a taste of that the other day with an aborted oil rebound. ABC News reports the story.

A recent rebound in oil prices came to an end as the benchmark contract for U.S. crude fell $2.32, or 5 percent, to $50.66. Crude prices rallied 19 percent over the previous four days as producers canceled exploration projects and cut the number of rigs drilling.

When will oil stocks recover? Look for when the number of drilling rigs increases again and look for better economic numbers from Japan, China and Europe. And look for an end to Russian adventurism in Ukraine!

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