As the current state of the world shows a massive excess and oversupply in oil, crude prices continue to drop and suppress stock prices for oil companies. Some experts are saying that this means there is large potential in the market for ETFs like United States Oil Fund LP (ETF) (NYSEARCA:USO).
Beat Wittmann, a partner at Swiss financial advisory Porta Advisors, stated “The sector has been underperforming, there’s great value, so you have to play the sector. The sector is so attractive right now and it’s a global demand-supply game.”
The price of a barrel of crude stands stuck at between $45 to $60 dollars, but Wittmann thinks there is a lot of potential.
He further stated, “They’ve cut costs and exploration programs. They’ve digested and readjusted balance sheets and quite frankly that investment case foes not so much depend on if the pol price is at $50 or $60. They just look through that.”
Wittmann further stated that the oil companies are offering massive dividend yields which makes the sector extremely attractive as a whole.
Another strategist, Nick Nelson, who is the head of global and European equity strategy at UBS stated “The oil sector does have a very high dividend yield. It’s got the highest dividend yield in the European market at about 6%, so we think there’s some value there.”
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The oil and gas sector of the pan-European Stoxx 600 is down a solid 10.95% so far this year, with the Stoxx 600 being up 5.04% for the year.
Nelson stated that the crude prices, he thinks, will move toward around $60 by the end of the year, with further cutbacks and lowered investments.
Nelson said that “the demand side we think is reasonable: global growth is in a pretty good place; Europe’s recovering; the U.s> is steady; and the U.K. is probably the only one major economy that seems to be slowing.”
According to Jon Rigby and Joseph Head, both analysts at UBS, “After 13 consecutive quarters of oversupply, inventory drawdowns began in (the second quarter), with OPEC’s cuts compensating for a significantly higher trajectory for U.S. production than looked likely several months ago. The demand side continues to hold up well.”