Deutsche Bank Comments On Oil Ahead Of OPEC Meeting

In a note out Tuesday morning, Deutsche Bank commented on the catalysts driving oil, especially pertinent in front of OPEC meeting.

Highlights from the note:

• The U.S. rig count was up 1 rig from last week to 1,929 with oil rigs down 4 to 1,574 and gas rigs (including miscellaneous rigs) up by 5 at 355.
• Oil price decline couldn't come at a worse time as E&Ps ponder 2015 budgets.
• Optimism that the offshore drilling market is going through a “pause” is fading as floater markets continue to weaken. Jackups next?
• Signs of life in international? Early year fears of a pronounced slowdown internationally seem to be fading with strong activity growth in Saudi and the broader Middle East keeping the Eastern Hemisphere tight. LatAm seems to have at least stabilized.
• End of the exploration cycle? Exploration success has been strong inrecent years. We are seeing increasing signs of a shift to development and monetization.

Events to watch:

• Q3 earnings have mostly been solid for the North America focused players, but the focus remains on the commodity weakness and where are the E&P's heads at on 2015?
• Lots of reform. When do we see the impact? Market-friendly reforms in Mexico, China, Argentina and other markets look good on paper.
• How strong will the follow-through be and when will we see the effects? Hint: They always take longer than one expects.

Deutsche Bank recommends Exterran Holdings, Inc. EXH as its top overall pick, saying, "EXH is a catalyst rich story whose core business should see little impact (at least initially) from lower commodity prices. It is our favorite small-cap and Top Pick. While we still prefer the NA development theme, given the challenging commodity price backdrop and the potential for SLB to benefit from the uncertainty surrounding its two largest competitors, it is now our preferred large-cap. In mid-cap, negative view of offshore has been too broadly interpreted with later cycle offshore service names still enjoying positive secular trends with OII our favorite mid-cap."

Exterran was trading lower by 1.4 percent at $37.74 on the back of lower crude prices.