Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts.
Meanwhile, advances in U.S. shale oil production technologies are contributing the to supply surplus and weighing on any oil price gains. It has become much cheaper for the upstart U.S. shale producers to extract oil out of the ground, but the growth rate of U.S. oil product has also recently slowed.
“The sector is clearly out of favor and has been for some time. We believe investors are always wise to consider sentiment, but should then dig a little deeper and analyze the trends and facts,” notes Invesco. “After the long period of underperformance, many funds (understandably) lightened up on energy shares and are now underweight. At some point, this trend will reverse, and demand for these shares should increase. Also, many investors have taken short positions in energy stocks, and they will have to buy shares in order to settle these positions.”
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