Eq: Energy

Eq: Energy (126)

الثلاثاء, 27 حزيران/يونيو 2023 03:19

Shell, BP Pivot Away From Renewable Energy

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In an article for Bloomberg, Will Mathis covers how Shell and BP are retreating from its renewable energy projects in wind and solar due to lackluster returns and increased competition. It’s leading to opportunities for renewable firms who are no longer facing competition from Big Oil who are subsidizing projects with profits from oil and gas. 

As these oil & gas companies entered the renewable space, they were willing to bid at lower prices than renewable firms in order to win government contracts, notably in offshore wind. However, returns on these projects have been middling, in part, due to inflation and supply chain constraints for key components. 

Less than 4 years ago, Shell’s ambition was to be the world’s biggest producer of renewable energy. Now, it no longer has any sort of goal for renewable energy capacity and recently announced that it is upping capital expenditures on fossil fuels, likely due to continued, higher returns in the space. Similarly, BP is shifting away from solar and wind for similar reasons. Instead, it’s increasing spending on its biofuels and service stations while cutting back on renewables. 

Yet, cumulative, global investments in renewables continue to increase with an expected $1.7 trillion in 2023 according to the IEA which is the 8th straight year of growth. 


Finsum: Fossil fuel companies like BP and Shell are pulling back from renewable energy projects. However, global investment in renewables continues to increase, reaching an expected $1.7 trillion in 2023. 

 

الإثنين, 26 حزيران/يونيو 2023 03:14

Buffett Continues to Increase Exposure to the Energy Sector

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Even at his advanced age, Warren Buffett continues to make prescient moves. The most recent example includes loading up on energy stocks just prior to the sector’s incredible gains in 2020 and 2021. While prices have receded amid concerns that a recession is near, Buffett is using the weakness to increase his exposure to the sector.

However, his most aggressive bet in the sector is on Occidental Petroleum of which Berkshire owns 222 million shares which is equivalent to nearly 25% of the company’s market cap. While Occidental is an integrated operator, the bulk of its revenues are from drilling which means that it’s sensitive to swings in the price of crude oil.

Based on his public comments, Buffett sees the energy supply chain as being constrained given a lack of capital expenditures over the last decade, Russia’s invasion of Ukraine, and changes wrought by increased electrification. At the same time, global demand for oil continues to increase, leading to a tighter equilibrium between supply and demand. 

In addition to his Occidental investment, Buffett also has a $22 billion stake in Chevron. Additionally, Berkshire Energy contributes $25 billion of revenue to its parent company and is composed of power generation and distribution companies like pipelines, renewables, and utilities.


Finsum: Energy has delivered poor returns in 2023 amid increased supply and growing recession fears. However, Warren Buffett continues to increase his exposure to the sector.

 

الإثنين, 19 حزيران/يونيو 2023 04:32

IEA Says World to Reach Peak Oil Demand by 2030

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Last week, the International Energy Agency declared that the world will reach peak oil demand by the end of the decade. It attributes this to an increasing share of energy produced by renewables, the explosion in EV adoption, and continued increases in efficiency. 

Due to these factors, it sees growth in oil demand growing marginally over the next few years before peaking in 2030. This year, the agency sees $2.8 trillion invested in the energy sector with $1.7 trillion going into non-fossil fuel sources like nuclear energy, renewables, and EVs. 

Out of this group, solar is the leader with nearly $700 billion in investments which is nearly equivalent to all of the capital spending on oil. In total, fossil fuel investments which include coal, oil, and natural gas are expected to total $1 trillion. 

In terms of EVs, the agency forecasts that 14 million will be sold this year. It also sees continued adoption with electric buses and trucks gaining market share. 

Overall, the IEA believes that investors and fossil fuel companies need to make appropriate adjustments to account for these shifts in behavior and consumption. 


Finsum: The IEA recently declared that oil demand will peak in 2030 due to increasing EV adoption, growth in renewables, and increasing efficiencies. 

 

الخميس, 18 أيار 2023 13:37

Energy Sector Earnings Forecast to Decline 21% in 2023

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In an article previewing the first quarter earnings season for the energy sector for Zacks Investment Research, Sheraz Mian discussed the major factors for why analysts are forecasting 2023 earnings to decline by about 21% compared to 2022. 

The major factor is that prices are down by about 25% when compared to last year. Additionally, costs are going up faster than expected, leading to downwards pressure on margins. Given these uncertainties, companies continue to be conservative in terms of CAPEX and optimizing balance sheet health.  

In terms of the outlook for crude oil prices in 2023, the major headwind is weaker demand as economic growth decelerates across the world. Many expect the US economy to stumble into a recession later this year as the Fed keeps rates high to tamp down on inflationary pressures. Additionally, Chinese growth has also been less robust than expected following the end of its Covid policies. 

This is sufficient enough of a headwind to offset bullish impulses from OPEC cutting production, sanctions on Russian oil production, and the US government restocking its depleted crude oil inventories. 


Finsum: Earnings for the energy sector are expected to be down 21% compared to last year as recession concerns dominate. 

 

الإثنين, 08 أيار 2023 13:19

Energy Stocks Lower Despite Strong Earnings Season

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In an article for the Financial Times, Derek Brower discussed recent weakness in energy stocks due to increasing worries of a recession despite a recent string of strong earnings reports. This follows a two year rally which was fueled by production cuts in 2020, a better than expected economy, and the war in Ukraine. 

Last year, the energy sector was up more than 50%, while the S&P 500 finished down double-digits. This year in contrast, the S&P 500 has an 8% gain, while the energy sector is down 5%.

According to Wall Street analysts, investors are looking past companies’ strong results due to expectations that recent trouble in the banking sector will translate into reduced economic activity and demand for crude oil. 

Another indication is that dividend yields in energy stocks are nearly double those found in financial stocks and quadruple those of tech stocks. Inflation is proving to be a significant headwind as production costs have increased, eroding margins with lower oil prices. Another is that productivity in the Permian Basin has declined by 30% over the last 2 years, another reason that margin contraction is likely.


Finsum: Following major outperformance in 2022, energy stocks have underperformed so far this year due to increasing recession fears.

 

السبت, 29 نيسان/أبريل 2023 11:33

3 Reasons Why Goldman is Bullish on Energy

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In an article for Oilprice.com, Alex Kimani discussed three reasons why Goldman Sachs is bullish on the energy sector. The bank sees Brent and WTI crude oil trending higher to $100 and $95 per barrel over the next 12 months, respectively. 

The bank sees faster growth in China as supportive of commodity demand overall. Regarding energy, it sees supply pressures from OPEC+ production cuts, embargoes on Russian crude shipments and global growth as key drivers.

Some other reasons cited for favoring energy are attractive valuations. Currently, it has a P/E ratio of 6.7 which is the cheapest among the 11 major sectors, and this is considerably cheaper than the S&P 500’s P/E of 22. 

Despite a slowing economy and lower energy prices, Q1 earnings have remained quite strong. Net margins improved from 11.8% to 10.4%. This is in contrast to most sectors which are experiencing margin compression. Further, earnings are forecast to remain stable over the next couple of years due to low capex, higher costs for new projects, and geopolitical risk. 

Overall, energy stocks offer investors attractive valuations and robust earnings growth potential. The longer-term picture remains attractive due to longer-term supply trends, while demand is expected to remain steady.

 

الإثنين, 10 نيسان/أبريل 2023 17:14

Not all’s quiet in middle town America

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The Land of Oz? Um, not exactly.

While clearing the Kansas legislature, a proposal aimed at standing in the way of investing that bears in mind environmental, social and governance factors, butted against headwinds; namely, divisions within its GOP minorities that have watered down the measure, according to timesunion.com. It represented a setback among some conservatives.

In the last two years, Oklahoma, Texas and West Virginia are among at least seven states that have enacted anti-ESG laws. Additionally, two GOP governors, Florida’s Ron DeSantis and Greg Gianforte of Montana moved to ensure the funds in their states weren’t invested with ESG principles in mind.

“We right here wanted to focus on what we control — state pensions, state investments, government contracts, stuff like that,” said Republican state Rep. Nick Hoheisel, of Wichita, chair of the House committee handling the legislation, reported usnews.com.

“It’s still a panicked response to a fake issue that’s been created by right-wing media,” said state Rep. Rui Xu, a Kansas City-area Democrat.

Those who are aligned with ESG principles maintain that, financially, it makes sense to keep in mind  issues like whether a shift to green energy adds more risk to investing in fossil fuel companies.

 

الأربعاء, 22 آذار/مارس 2023 06:25

IEA: Global Oil Demand to Hit New Highs in 2023

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On March 15th, the International Energy Agency raised its estimate for global oil demand in 2023 by another 100,000 b/d as rebounding air traffic and pent-up Chinese demand push consumption to record highs. In its latest monthly oil report, the energy watchdog said it now sees global oil demand averaging 102.02 million b/d in 2023. That’s 2 million b/d higher than in 2022. The IEA estimates that gains will accelerate over the year, rising to 2.6 million b/d year on year in the fourth quarter, from 710,000 b/d in the current quarter. In the report, IEA stated, "Global oil demand growth started 2023 with a whimper but is projected to end the year with a bang .... Rebounding jet fuel use and a resurgent China will see an overall Q1-Q4 ramp-up of 3.2 million b/d, the largest relative in-year increase since 2010 with oil use surging to 103.2 million b/d in second-half 2023." The agency attributes the rise in demand to China's economic momentum, with rebounding February Purchasing Managers' Index data and robust air traffic demand. The IEA said Chinese mobility mostly stabilized after January's "remarkable bounce." It also added that Chinese air traffic with domestic flights is now well above pre-pandemic levels. Due to this, the IEA raised its estimate for Chinese jet/kerosene demand by 60,000 b/d.


Finsum:In its recent monthly oil market report, the International Energy Agency raised its estimate for global oil demand this year by another 100,000 b/d as rebounding air traffic and pent-up Chinese demand push consumption to record highs.

الأحد, 12 آذار/مارس 2023 17:03

Offshore Oil Rebound Underway

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While offshore oil drilling has been growing slowly in recent years, research firm Rystad Energy expects a surge in new spending over the next two years. Energy companies had previously been hesitant to commit to expensive new projects that can take years to pay off. But with oil and gas demand rising after the pandemic, some companies are now looking for projects that can offer reliable production in the longer term. According to Rystad Energy, the offshore oil and gas industry has $214 billion of new project investments lined up in the next two years, the highest two-year total in a decade. In fact, it will mark the first time since 2012-2013 that companies have spent this much to develop offshore projects. According to Rystad, “Offshore activity is expected to account for 68% of all sanctioned conventional hydrocarbons in 2023 and 2024, up from 40% between 2015-2018.” Middle Eastern producers will account for most of the growth, however, there are projects off several continents. For example, U.K. offshore spending is expected to rise 30% this year to $7 billion, while spending on Norwegian projects could increase 22% to $21 billion, according to Rystad. Plus, North America, Brazil, and Guyana are all seeing growth as well.


Finsum:According to research firm Rystad Energy, a surge in new spending for offshore oil drilling is expected over the next two years as companies look for projects that can offer reliable production in the longer term with oil and gas demand rising.

الخميس, 09 آذار/مارس 2023 14:35

Broad Consensus: Oil Prices Expected to Rise Throughout the Year

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While oil prices fluctuate constantly, there is a broad consensus that prices will rise throughout 2023. For instance, Forbes' Bill Sarubbi noted that the technical data of oil trading suggests prices are going to go higher. In a recent article, Sarubbi said that historical data shows oil prices tend to rise between March and May most of the time, therefore it makes sense to expect prices to rise this year as well. Data analytics firm Refinitiv singled out two factors that will drive prices on the supply and demand sides, Russia and China. Refinitiv expects Brent crude to rise above $100 per barrel by the end of the year and average $90 for the full year. The company said at a recent industry event that oil demand this year will surge by 2 million barrels daily and that China will account for half that. In addition, Russia's supply will tighten this month and maybe remain tight, which adds upward pressure to oil prices. Plus, Goldman Sachs senior energy economist Daan Struyven recently reiterated the bank's forecast for higher oil prices due to the lag between an oil market shock and the effect of the shock manifesting in futures prices.


Finsum:There is a broad consensus that oil prices will rise through the year due to technical data of oil trading suggesting prices are going to go higher, demand from China, tightened Russian supply, and the lag between an oil market shock and the effect of the shock manifesting in futures prices.

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