Market Overview

This Is Why We Are In The Final Phase Of The Oil Cycle

This Is Why We Are In The Final Phase Of The Oil Cycle

Oil prices have rebounded to near-$50 per barrel after trading for less than half of that price earlier this year. Despite the rebound of oil prices seen so far this year, Nicole Sinclair expects further consolidation in the oil sector as the lower-oil-for-longer thesis remains a reality.

Oil cycles are characterized by five stages, the analyst explained. First is "shock," then comes "denial," followed by "panic." The final two stages are "capitulation" and lastly "consolidation."

"Consolidation is always the last phase in the oil price cycle as companies revise their business model to survive in a lower for longer oil price environment," Sinclair quoted Oppenheimer's Fadel Gheit as saying. "Oil producers are adjusting their capital spending budgets to cope with the new realities for a new ‘normal oil price' of around $65 per barrel level."

Related Link: Crude Oil Lower In Very Tight Range

Gheit added that the oil sector is still a "buyer's market" with a "modest takeover premium," and surviving companies will also be "more resilient" to low oil prices.

Gheit also stated that oil service stocks have led the way and forced other energy industry groups to consolidate themselves. In the meantime, investors and traders will speculate which oil services companies will be next to sell themselves.

Sinclair suggested names that are "ripe" for consolidation include Seadrill Ltd (NYSE: SDRL), National-Oilwell Varco, Inc. (NYSE: NOV) and Weatherford International Plc (NYSE: WFT), among others.

Latest Ratings for NOV

Jan 2021Wells FargoUpgradesEqual-WeightOverweight
Jan 2021CitigroupUpgradesNeutralBuy
Jan 2021B of A SecuritiesUpgradesUnderperformNeutral

View More Analyst Ratings for NOV
View the Latest Analyst Ratings


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