After OPEC deal, investment firm bullish on energy stocks

By Luke Geiver | June 25, 2018

Miller/Howard Investment’s research and analysis firm offered its take on the decision by OPEC to slightly increase oil production during its June meeting last week. The team offered a single word reaction: bullish.

Since first implementing production curtailments in 2016, OPEC, with the help of Russia, has decreased oil production by 2.8 million barrels per day, according to the firm. The production declines came from involuntary declines in Iran, Venezuela and Nigeria in addition to curtailments by Russia and Saudi Arabia. Although the recent agreement by OPEC could bring back 1 million barrels of oil production per day to the market, Miller/Howard’s team notes that some OPEC members can’t physically increase production at the current time, including Venezuela, Iran and Iraq, all of which lack spare capacity.

“Thus, it appears that a real increase of 600,000 bopd is more likely,” the company said, noting that this is an “excellent” outcome, according to Michael Roomberg, portfolio manager.

“Broadly speaking, energy stocks have dramatically lagged the rise in crude oil prices. This appears most tied to the fact that while prices have recovered, confidence in the oil price outlook has been low,” Miller/Howard’s team said. “In isolation, this agreement would appear to solidify good oil prices, while affirming OPEC plus Russia coordination and cooperation into 2019 and perhaps beyond, as necessary. We believe that should remove some of the angst that has kept energy stocks trading at below average price multiples while the rest of the market trades expensive.”

In the coming months, Miller/Howard said, “energy stocks should outperform oil prices.”