Notwithstanding a second wave of COVID19
Oil volatility has started to recede now as the market is starting to see an end to the present crisis. Although we are not necessarily going to see a huge relief rally in price straight off the mark we are seeing the recent panic levels pulling off recent highs:
We had a brief rally on Monday this week as Saudi Arabia and other OPEC producers announced further output cuts. US production as a whole is continuing to fall. Oil exploration in the US is now at its lowest level since the start of the Shale boom and the US Shale industry has essentially now been delivered a hammer blow that it is hard to see it recovering from. Its only slither of hope is from US company bailouts which include struggling shale producers.
When we consider supply and demand Standard Chartered calculate that the market will balance in July and then move into excess consumption. Hedge funds have now boosted their bullish perspective for WTI to the highest in a year in anticipation of higher prices.
So, one long term move that makes sense is buying into oil majors now and forgetting about them for a few years. You would expect the smaller companies that go bus to be bought out by the larger players (Shell, BP, Exxon, Chevron, Total etc). Once oil prices move higher they stand to gain even further after picking up competitors at a bargain price.
Risks to oil upside
All trades come with risks and their are two main risks to this outlook. Firstly, a second/third wave of COVID19 (although that impacts timing more than anything) and secondly, a massive rise in non-fossil fuels which cut oil demand permanently.