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The Demand Side Beckons

By  Elliott H. Gue
Issue No.54 . Dec. 18, 2014
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The combination of slowing oil demand growth in China and other key markets and surging output from US shale plays—and their implications for global spare productive capacity—has sent crude prices plummeting.

Although crude-oil prices have caught a bit of a bid over the past few days and oil-field services and upstream names have benefited from a bout of short covering, the near-term outlook suggests that crude-oil prices will remain below the elevated levels that became the norm in recent years.

Meanwhile, any moderation in production volumes associated with anticipated reductions to capital expenditures won’t show up for several quarters, especially with operators focusing development activity in their core acreage and pushing for 15 percent to 20 percent price breaks from service providers.

And with US producers able to sink high-probability new wells within a week, this shadow capacity should keep a lid on oil prices in the intermediate term, assuming OPEC maintains its output levels and no major disruptions occur in the usual hot spots.

Against this backdrop, the demand side beckons. Our favorite hedge against lower crude-oil prices–a name that we added to our Model Portfolio in January 2014–has soared by 41.6 percent since the end of the third quarter.

In this issue, we highlight our top picks in several industries that stand to benefit from extended weakness in crude-oil prices and offer exposure to other company- and industry-specific growth trends.

We also highlight an opportunity for investors to lock in high yields on securities that actually stand to benefit from potential dividend cuts in the upstream space.

These picks will work in concert with our top picks in the energy sector to deliver solid returns during a period of heightened volatility.

Next Issue Date : Dec. 31, 2014View Past Issues

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    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor