Have we reached the bottom of the oil cycle? Maybe not yet. Goldman Sachs reckons there is lower to go, despite black gold recently hitting a seven-week high.
It expects oil to stay low for another three months, trading at around $40 a barrel, down from todays $55.
Management at Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) is evidently calculating that we are pretty near the bottom, however.
Its 47bn cash-and-shares offer for BG Group looks like an attempt to suck up oil assets on the cheap, before the cycle moves upwards again.
If Shell reckons now is a good time to pick up oil stocks at bargain prices, maybe you should be doing likewise.
Rev Your Engines
Oil stocks havehad a tough year. Shell and BP (LSE: BP) (NYSE: BP.US) are down 14% and 5% respectively over the last 12 months, against a 6% rise in the FTSE 100.
The oil price collapse has played a major role in that, although of course BP has its own problems.
Even if Goldman Sachs is correct and oil stays low through summer and beyond, now may still be a good time to start building your stake in these companies. You are never going to hit the absolute bottom of the market, but if you start buying now you should at least pepper the target.
Trash Talk
I wouldnt recommend buying in the hope that Shells manoeuvre will trigger a wave of oil industry takeovers.
Personally, I dont like buying on loose takeover talk, but that hasnt stopped investors bidding up the price of BP in anticipation, and smaller explorers such as Ophir Energy and Tullow Oil.
World Of Worry
But other factors could kickstart the next phase of the oil cycle. US rig count is falling faster than expected, as cheap oil burns margins.
If the Obama administration does strike a deal with Iran over its nuclear programme, it will still take a year or more for the nations oil fields to get back to full production.
The worlds swing producer, Saudi Arabia, is politically unstable, and another flare-up in the Yemen could frazzle nerves.
And all the time the worlds population is growing, emerging markets are demanding western lifestyles, and renewables have yet to turn into green gold.
If cheap oil gets the global economy motoring again, and takes pricey production offstream, it will ultimately generate its own price recovery.
Top Up Your Tank
Few expect an immediate upswing, given record high Saudi output and US inventories, but while you wait, BP yields 5.14% and Shell, following its recent share price dip, yields 5.62%.
That is just the juice you needin a zero inflation world.
If you’re tempting by these juicy yields, there are even more generous company dividends out there. The FTSE 100 is packed with top stockspaying as much as 5% or 6% a year.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.