Market Insights

Energy has gone nowhere for months, but now some positive forces may be lining up.

Reuters reported yesterday that OPEC will probably extend its oil-production cuts from March 2020 until June. The change could be announced at the cartel’s next meeting on December 5-6.

Shortly after the meeting, Saudi Arabia plans to sell shares in Saudi Aramco — the kingdom’s state-owned energy giant. It’s several times bigger than Exxon Mobil (XOM), and is expected to have an even richer market capitalization than Apple (AAPL) or Microsoft (MSFT).

There’s an interesting twist, according to Reuters: The Saudis may try to get a higher stock valuation on Aramco by using OPEC to drive up the price of crude oil.

Oil’s Outside Week

The market may be starting to price in a brighter scenario. Crude oil futures (@CL) are heading for their third straight positive week. They also rebounded from a sharp drop on Tuesday, creating the potential for a bullish “outside” week. That’s when prices make both a lower low and a higher high.

Meanwhile, 2019’s weak prices have caused U.S. oil producers to cut back. Last week’s Baker Hughes (BKR) rig count, a proxy for drilling, fell to its lowest level in 2-1/2 years. The result could be less short-term supply increases.

Coincidentally, Deutsche Bank initiated companies like BKR, Halliburton (HAL) and Schlumberger (SLB) with “buy” ratings on Wednesday. The analyst expects production to increase from long-term depressed levels next year.

In conclusion, worries about the global economy has created bleak sentiment in energy. But just when the bears thought they had oil in their grasp, some positive forces may be emerging.