Investors today are unreasonably bearish on oil companies

Last week, oil cartel Opec met up with non-cartel member Russia (collectively known as the Opec+ alliance).

The extended group agreed to cut oil production by more than expected half a million barrels a day. Saudi Arabia the biggest Opec producer also agreed to further voluntary cuts of 400,000.

Overall, we're now looking at more than two million barrels a day in cuts since the start of the year.

Yet markets just didn't seem to be all that bothered.

No one cares about oil

Opec is worried about an oil glut hitting the market early next year. America just keeps pumping that shale oil. Meanwhile, analysts are concerned about weak global demand, partly due to the trade war and partly due to a cyclical downturn in manufacturing and in the semiconductor industry in particular.

That along with the long-term belief that oil is going the way of the dinosaur has helped to keep a lid on prices this year. There's also a sense that little stands between where we are today and a big supply glut that could drive prices over the cliff-edge again.

Obviously oil-dependent countries don't like that idea. The Saudis in particular are desperate to prop up the valuation of Saudi Aramco, the state-owned oil company whose shares start trading this week.

The IPO (initial public offering) has so far been disappointing (disappointing mainly in that the shares all had to be sold to locals who either bought out of patriotism or out of a desire to avoid being locked up again).

The desire by the Saudis to sell off the family jewels comes partly because they need to use it as a cash cow to fund their expensive welfare state while they are attempting to diversify their economy to be less dependent on black gold.

So it's not a big surprise that the cuts were larger than expected. What perhaps was more of a surprise was the market reaction. Oil jumped by 2% on Friday (and to be fair, it had been climbing for most of the week). But this morning, it's ticking back lower.

It's reminiscent (though much less extreme) of the market reaction after the Saudi oil refinery was targeted by drones in September. After that attack, oil surged higher. Within a few weeks, it was back to where it was before the assault.

To put it bluntly, no one cares.

The oil sector is hated out of all proportion right now

Want to get an idea of how despised and neglected the oil sector is right now?

Robin Wigglesworth of the FT tweeted out an interesting chart the other day. It showed that the market capitalisation of Apple (currently around $1.2trn) had surpassed the market capitalisation of the entire S&P 500 energy sector (around $1.1trn).

Now, Apple is an important company. One of the biggest smartphone providers in the world. One of the FAANG tech stocks. A company that has arguably helped to revolutionise our both our working and consumer lives.

But is it really worth more than every single one of the 28 companies in the S&P energy sector combined? In case you're wondering, that includes the world's biggest listed oil major, Exxon Mobil, as well as smaller majors such as Chevron. It includes oil services giants Halliburton and Schlumberger.

I mean, oil is still pretty important too. I look forward to the day when we're all driving electric cars and I'm pretty sure it'll come, but right now, we still need the stuff to get around. There's also the fact that we need it for plastics and various other useful materials.

I suppose my point is I don't disagree with the bear case for oil. In the long run, you have to hope that we can get most of our energy from renewable sources. This understanding (plus tough competition from the Americans) is what underpins Saudi Arabia's attempt to shift away from its oil dependence.

And, by the way, I think you can be entirely agnostic on climate change and still like this idea. I struggle to see the downside to replacing a finite, geopolitically sensitive, and highly polluting form of energy with a near-infinite and entirely clean form of energy, be that solar, wind or even nuclear.

So you can believe the "story" of stranded assets and all the rest of it. But you can also feel that the market has jumped the gun.

Just think back to 2000. It's arguable that all of the promises of the tech bubble have been fulfilled beyond anyone's wildest imaginings back then. But the prices put on tech stocks at the time were still unreasonable.

I'd suggest that something similar is happening in reverse to the oil sector.

On top of that, I still think that a rising oil price is one of the biggest potential nasty surprises for next year.

The level of complacency on that front is high at the moment. Oil is one of the few things that no one is really worried about. And yet, if you're looking for a problem that's tricky for central banks to deal with and which also presents a massive headache for politicians well, a rising oil price is public enemy number one.

As Louis Vincent Gave of Gavekal points out, even if you don't think that the oil sector is ridiculously hated, it represents a decent hedge against rising inflation, should that ever materialise. And in the meantime, decent dividend yields mean you're getting "paid to wait".