Oil prices have tanked this year. Oversupply and diminishing consumption have resulted in oil falling to its cheapest price since May of 2009. “It’s a three-way oil war between OPEC, Russia and North American shale,” says Marin Katusa, author of “The Colder War,” and chief energy investment strategist at Casey Research.
Katusa doesn’t see production slowing in 2015: “We know that OPEC will not be cutting back production. They’re going to increase it. Russia has increased production to all-time highs.” With Russia and OPEC refusing to give up market share how will the shale industry compete?
Katusa thinks the longevity and staying power of the shale industry will keep it viable and profitable. “The versatility and the survivability of a lot of these shale producers will surprise people. I don’t see that the shale sector is going to collapse over night,” he says. Shale sweet spots like North Dakota’s Bakken region and Texas’ Eagle Ford area will help keep production levels up and output steady.
If you’re looking to invest in the energy sector, Katusa says don’t follow the crowd: “You have to be a contrarian and when everyone is hating oil that’s when you start looking.” Capitalizing on the lowest cost of production is a good rule of thumb. Right now oil is cheaper to produce but Katusa sees the shale sector eventually catching up. Also, look for shale to benefit from low interest rates.
Katusa advises staying away from companies like Billionaire Harold Hamm’s Continental Resources (CLR), who’s stock saw nearly a third of its value wiped away this year. “You want to stick with the liquids. You want to stay away from companies that have high debt.” He thinks there are plenty of good companies with big upsides: “I think Enterprise group (ETOLF) is going to surprise a lot of people. They’re a $70B company, pay a 4% yield and they don’t have the volatility risk in the price of oil.”
As for oil prices in 2015, Katusa sees stability on the horizon: “I don’t see $20 oil. But I do see a trading range, a near term correction to maybe $65. We’re going to be in a trading range between $45-65 oil.”
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