U.S. oil and gas stocks were expected to get hammered Monday, as members of the Organization of Petroleum Exporting Countries and other oil producing countries failed to reach an agreement in Doha, Qatar, on Sunday to cut or cap production (with a refusal by the not-in-attendance Iran). But they didn't.
While the price for West Texas Intermediate crude oil was down 7% at one point Monday morning to $38.99 a barrel, the NYSE Arca Oil 7 Gas Index, which includes names like Anadarko Petroleum (APC) , Occidental Petroleum (OXY) and Exxon Mobil (XOM) , was actually up slightly at midday.
Analysts at Piper Jaffray unit Simmons & Co. International wrote in a note that while the news out of the weekend was negative, the real fulcrum of the rebalancing in the oil markets is being driven by non-OPEC countries contracting rather than expanding, with 2016 expected to represent the first contraction in non-OPEC production since 2008. "The asymmetry for oil prices is higher rather than lower over the next two years," they noted.
So is now a good time to pick up oil and gas stocks?
Tudor, Pickering, Holt & Co. thinks it is. It said it would be buying stocks on the oil market weakness with the fundamentals improving recently. It likes Gulfport Energy (GPOR) along with Chevron (CVX) , EOG Resources (EOG) , Concho Resources (CXO) , Rice Energy (RICE) , Baker Hughes (BHI) , Halliburton (HAL) and Schlumberger (SLB) .
Jason Wangler, who follows oil and gas stocks at Wunderlich Securities, has a buy rating out on Gulfport along with Pioneer Natural Resources (PXD) , Bill Barrett (BBG) and Callon Petroleum (CPE) . Stifel recommends Pioneer and Concho along with Noble Energy (NBL) , PDC Energy (PDCE) , Parsley Energy (PE) , Synergy Resources (SYRG) and Cimarex Energy (XEC) .
Bad things could still happen that could bring oil prices even lower. Seaport Global Securities estimated that OPEC could push production as high as 33 million barrels per day in the third quarter after a crude oil balance tightening in the second and third quarters. It also thinks demand growth could easily decelerate if prices go up too much, so the bias is very likely going to tilt back to a higher surplus to maintain price pressure on Iran, Russia and tight oil producers in North America.
The KLR Group said it expects Iran to gradually increase production to 3.6 million barrels a day by early next year (it was at 3.5 million recently, versus its pre-sanction level of 4 million barrels). It anticipates Saudi Arabian production will stay stable at 10.1 million to 10.3 million, Russian output will go slightly over 11 million barrels and Iraqi volumes will increase 500,000 this year with continued development of the country's southern fields. Tudor, Pickering, Holt said Saudi officials suggested over the weekend that they could quickly ramp up production to 11 million barrels a day, which would have the most negative near-term outcome but is probably unlikely.