Helping America Navigate a New Energy Reality

Investors Increasingly Bullish on Energy Sector

By on 14 Mar 2016 in news, notable posts

(NY Times) It was one of the darkest periods of the oil market slump. The global economy was showing fresh signs of slowing, and crude prices were collapsing so steeply that virtually every well in America was unprofitable.

But when Diamondback Energy went out to raise $226 million worth of new stock that week in the middle of January, the oil and gas company found more buyers than it could accommodate. It had to nearly double the amount of shares it sold, to four million.

Since Diamondback issued equity that day, the company’s share price has increased more than 29 percent.

Across the oil industry, investors have been placing their bets that prices have hit bottom. Risk-seeking investors like hedge funds and private equity firms, which were already lending money to struggling energy companies at high interest rates and onerous terms, are among those to have smelled opportunity in a potential comeback.

Yet some of the biggest and most successful bets on oil are being wagered by mutual funds and index funds that are scooping up plain-vanilla equity offerings like Diamondback’s deal in January.

With production slowing, oil prices have rallied in recent weeks. On Friday, the International Energy Agency declared in a report that “there are signs that prices might have bottomed out,” citing progress among leading oil producing nations about a production freeze and supply outages in Iraq, Nigeria and the United Arab Emirates.

There is still a way to go before a full recovery. Many analysts caution that the recent recovery in prices could easily reverse itself. They argue that the tentative agreement between Saudi Arabia, Russia and a few other producing countries to freeze output at January levels will probably make little difference to global supplies.

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