Don’t ‘Underestimate’ Oil’s Coming 1980s-Style Down Cycle, Raymond James Warns Investors
Submitted by EnergyTechStocks.com
Only a week after declaring that global oil production has “peaked,” investment firm Raymond James & Associates is warning investors that the oil industry “may be in the early stages of a multi-year down cycle.”
In a May 4 research note, the advisory firm said it believes “mankind better get ready to live in a peak oil world,” because it appears global oil production topped out in the first quarter of 2008.
Apparently, however, the world won’t be starved for oil anytime soon. In a May 11 research note, Raymond James said it looks like the oil industry’s immediate future will be a severe down cycle that will look “eerily similar to the early 1980s,” which was when the world was awash with oil, causing prices to plunge and drilling activity to stall.
While seemingly contradictory, the Raymond James position makes sense in that, just as the 1980s oil glut dried up drilling activity, eventually causing a worldwide scarcity of oil, today’s “eerily similar” glut can be expected to lead to shortages down the road, as global demand keeps rising in the face of peak production limitations. The only caveat EnergyTechStocks.com would add is that the next oil crisis may be preventable if enough plug-in electric hybrid vehicles are on the road, although few experts believe there will be enough time for that to happen.
Raymond James said it doesn’t share the optimism it found prevalent among attendees at the recent Offshore Technology Conference in Houston. “Unfortunately we don’t expect” the oil industry to rebound “anytime soon,” the firm’s oil analysts said in their research note. The note went on to warn that companies and investors “are likely to underestimate the magnitude” of the industry-wide downturn that Raymond James believes has already begun.
According to Raymond James, “Many companies have yet to truly feel the pain because pricing for equipment hasn’t dropped dramatically yet. The lack of ordering activity is creating a mirage where prices appear to be holding up as equipment and services priced a year ago flow through earnings statements. In reality, prices will fall and fall sharply, once ordering activity resumes.”
Raymond James didn’t name names, but if it’s right, oil investors presumably could be disappointed by the future results of a large number of oil concerns, among them: Diamond Offshore Drilling (Symbol DO), Noble Corp. (Symbol NE), Rowan Companies (Symbol RDC) and Transocean Ltd. (Symbol RIG).
