Those who have invested in oil stocks rejoiced this week as the Organization of the Petroleum Exporting Countries finalized its first crude oil production cut since 2008. The news sent WTI crude oil prices soaring more than 8.3% to above $49 per barrel. Predictably, oil stocks had a positive reaction as well. However, the OPEC deal may be too little too late for a handful of deepwater oil stocks.
The OPEC deal is a positive first step in normalizing the global oil market. Oil prices will certainly benefit from the cut in the long-run. However, just how much and how quickly oil prices will rise remains a mystery.
Deepwater drilling stocks spiked following the OPEC news. But, despite the headline excitement, deepwater oil stocks are still in deep trouble. Even after the OPEC news, crude oil prices couldn’t even immediately regain the $50-per-barrel-level.
According to Rystad Reports, deepwater and ultra-deepwater oil projects require crude oil prices of “$77 and $64 per barrel, respectively,” just to break even. Meanwhile, plenty of shale oil projects in the U.S. have break-even prices in the $40 to $50 per barrel range.
The U.S. Energy Information Administration is now calling for WTI crude prices to average only $50 per barrel in 2017.
There is plenty of uncertainty in the oil and gas market right now. With this in mind, here are three deepwater oil stocks that aren’t out of the woods just yet.
Traders that own the following three offshore oil stocks should consider any dramatic OPEC-driven market rally as a selling opportunity. Instead of owning these stocks, they should transition to higher-quality oil services stocks with exposure to the lower-cost U.S. shale market.