Which Energy Companies Are Being Added to US Global Funds in Anticipation of an Oil Rebalance?

There are still winners in the energy space, but you have to move quickly. In advance of the rebalance U.S. Global Investors CEO Frank Holmes is expecting toward the end of 2016, he and analyst Samuel Pelaez point to the sectors taking advantage of opportunities, including refiners, midstream MLPs, low-cost producers, airlines and chemical companies. In this interview with The Energy Report, they name their favorites and outline the fundamentals that will make 2016 look a lot different than the year that just ended.

The Energy Report: In a recent Frank Talk, you quoted BCA Research with a prediction that oil markets will rebalance in 2016. What is that based on?

Samuel Pelaez: This chart shows that the U.S. has come off its peak production quite a bit. We reached peak production in April at about 9.6 million barrels (9.6 MMbbl). We’re about 400 thousand barrels (400 Mbbl) off from that level. This goes a long way to rebalancing the supply/demand dynamics globally. Even though the U.S. has been a major contributor to rebalancing the supply in the markets, we have not seen the supply come off to the levels we were initially expecting. We thought about 1.2 MMbbl could be curtailed, but only managed to get about 400 Mbbl.

“BNK Petroleum Inc. has been able to squeeze more oil out of every well in this play than anybody predicted.”—Samuel Pelaez

One reason for the continued production is that banks are pressuring explorers and producers (E&Ps) to bring in cash flow. The only way for these companies to bring in more cash flow is to continue growing production, or at least maintaining production. On top of that, we’ve seen massive efficiency gains in shale productivity. So even though the rig count has fallen dramatically, the U.S. …read more

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