Although the price of West Texas Intermediate (WTI) crude oil has rallied above $50 per barrel in recent weeks, the risk-reward balance for the commodity skews to the upside over the next six to eight months.
The decline in the US oil-directed rig count signals that producers have reined in their horns a bit, while Libya and Nigeria—both of which continue to produce near peak levels—remain prone to security-related disruptions. Meanwhile, the socioeconomic and political environment in Venezuela continues to deteriorate.
Against this backdrop, we’d argue that WTI could approach $60 per barrel over the coming six to eight months, though this move won’t occur in a straight line and the timing remains uncertain.
Shares of exploration and production companies have responded to the rally in oil prices and enticed value-oriented investors to rotate into the space, propelling some stocks to valuations that would keep us on the sidelines.
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Elliott and Roger on Mar. 31, 2020
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