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I am going to be looking at smaller producers. I like the EagleFord area.
the highest cost producers that don’t go broke first will benefit the most from an uptrend in oil prices. But if this is like earlier busts it will take maybe a couple of years rather than a few months to play out… Both supply and demand change slowly. You can’t just shut down wells, some won’t restart with out reworking. Some drilling continues to hold leases even at a loss.
Best from an investment standpoint would be recession (itself enough to drive down oil prices) combined with the tail end of the present over supply/under demand. Since this is an old bull market that is certainly possible. And one should not ignore the possibility that declining oil prices are the actual harbinger of deflation in other items, i.e. a general recession.
In any case there is no rush to invest.
It would be worth studying past oil busts, which date back to the 1860’s
The rush to Pennsylvania created violent swings in the petroleum market for the first decade of the oil boom. In 1861, the explosion of wells across the Oil Creek Valley pushed the price of oil down to 10 cents a barrel. In response, producers in the region formed the Oil Creek Association to restrict output and maintain a minimum price of $4 a barrel. Despite efforts such as this to control the petroleum market, the volatile boom-bust cycle continued into the early 1870’s
Unless you believe crude oil prices are never coming back, at the right time this could be real winner. I am going to start looking for producers with costs of $60 or less, little or no debt, in fields like EagleFord where technology (engineering ) rather than geology is the main factor, where regulation is not oppressive, and in the US.
Geology is hit or miss, engineering gets better with time.