The collapse of the oil market and the plunge in stock and bond prices across the energy sector might be a great opportunity for value investors, but Glickman is still cautious. "As much as stocks have been beaten up, the fundamentals have had it worse," he said. "We're still underweight the energy sector, because there's a lot more pain to come."
The reason is a stubborn oversupply of oil in the global market, thanks largely to the "fracking" revolution and the explosive growth of U.S. oil production. In the last five years, it has increased from just over 5 million barrels per day to nearly 9.5 million barrels. With Organization of Petroleum Exporting Country members, such as Saudi Arabia, and big non-OPEC producers, like Russia, refusing to cede market share to U.S. producers, the supply imbalance got worse through 2015.
It may not be as bad as the supply glut in the 1980s that took more than a decade to work through, but the current situation will cause further volatility in the oil price. The oversupply is currently about 1 million barrels per day in production, according to market analysts. The International Energy Agency's forecast of 1 million to 1.2 million barrels in new demand this year may be high, but if it isn't, the excess supply could be worked off fairly quickly.