Eq: Energy (121)
Energy stocks went through a long, rough period leading into 2021. Since 2014, the whole sector has been maligned by low prices and sluggish demand. Renewable energy had stolen a lot of attention and funding and the traditional energy sector languished. However, a unique set of economic circumstances means it may be the right time to get back into energy. Oil prices have been rising strongly (a good inflation hedge), which is a nice catalyst, but almost more importantly, higher interest rates—which are clearly on the horizon—are a big headwind for renewables. Renewable energy projects take a great deal of financing and a long time to set up, which means higher rates increase costs and slow down financings.
FINSUM: Energy seems to be getting back in vogue, that said, the rise of ESG standards in debt financing might mean traditional energy projects also suffer.
Inflation is as buzzy as it has been since the 1970s, and the nation’s energy crisis is drawing another parallel to that decade. In an attempt to curb oil prices Biden released the nation's oil reserves hoping to drive down gas prices. However, earlier this year Biden tried to pressure OPEC+ to increase production to put downward pressure on prices and they rejected. Sure, if OPEC+ maintains production or actually increases (as they had stated they would) then prices will fall, but OPEC+ and other oil producers like Russia target a $70+ per barrel price point to optimize their profits. Many are speculating that this will cause OPEC+ to pull back production after their meeting in December, and spark a rift between oil producers and consumers like the U.S.
FINSUM: This is a desperate attempt by Biden to control prices which there has been little to no precedent for in past presidencies. This could blow up by hurting U.S. producers more and leaving oil prices unchanged.
(Houston)
Energy prices are rising from the U.S. to Europe, and while that might spark a good upside for energy companies it’s causing a crisis for those reliant in Europe. BSF SE and Aurubis AG are the continent’s number one producers in chemicals and copper respectively, but energy prices are eating at their margins. Major U.K. fertilizer companies are shutting down plant production in Norway. Gas prices are up nearly 200% in Europe and input costs have doubled as a supply crunch ravages the West. This shortage is painful on the frontside with high input costs but on the sell-side as well. Higher energy costs are eating up a larger percentage of home budgets and curtailing retail spending. Goldman Sachs expects the calamity to continue into the winter and warns of blackouts if consumption isn’t curbed. Finsum: This is the time to up the stakes in American energy prices. Energy shortages aren’t good for anyone but oil and gas are release valves.
(Houston)
Oil prices are surging as a comeback in the U.S. economy boosts demand…see the full story on our partner Magnifi’s site.
(Houston)
Oil prices are at a fresh peak seemingly every day. Some who have been watching the space for years might be wondering if that will prove fleeting or if it is the start of a big bull market run. Goldman sees oil as staying between $75-80 per barrel over the next 18 months, which will help companies deleverage and improve their returns. OPEC seems likely to be supportive of current prices. Given all this, Goldman thinks oil stocks are a good idea, recommending Occidental, Exxon-Mobil, Devon, Hess, and Schlumberger, among others.
FINSUM: If you believe in the economic recovery then commodities seem likely to have a strong run, oil included.
(New York)
Stock and commodity prices have been all over the place of late…see the full story on our partner Magnifi’s site
(Houston)
The commodities boom has been going on since at least late last year, but the big question is where the booms in many underlying raw materials can last. At least as it concerns major commodities like oil, minerals, and lumber, the answer is a big yes. The reason why is that the current boom has to do with underinvestment in production over the last 18 months, a problem that is hard to solve quickly. This means demand will outstrip supply for the foreseeable future in many areas. Lumber is a good example, where underinvestment has led to soaring prices.
FINSUM: Capital has not been adequately invested to meet the demand of consumers and prices are showing it. Equilibrium will take some find to find. There is a nice runway for commodities.
(Houston)
Environmentally, Social and Corporate Governance (ESG) investing is getting all of the attention from both news outlets and traders, but some investors think too much attention is being diverted from fossil fuels. They argue that oil is now a sin stock, where many investors stay away because of the nature of the good (e.g. alcohol, defense, gambling, and tobacco). Sin stocks traditionally outpace the market, under the wisdom that they remain perpetual value stocks because socially conscious investors stay away, and oil ETFs are starting to outperform renewable ETFs. In reality, sin stocks don’t get their boost from value but rather higher operating margins, and oil is one of the most competitive with low to negative margins depending on how far upstream the extraction is. While oil is moving out of environmental favor it isn’t quite a sin stock yet because it also lacks the capital intensity that is common to sin stocks.
FINSUM: There are a lot of reasons to be bullish on oil right now, but being sin stock probably isn’t one. Oil can still be a value play even if that’s not how sin stocks make their name.
(Houston)
Oil prices pushed up to $65 a barrel early in the week. Most investors…see the full story on our partner Magnifi’s site
Chinese Economic Data and Opec Demand Report Lift Oil Prices
Written by FINSUM
(Shanghai)
China is one of the biggest importers of crude oil and…see the full story on our partner Magnifi’s site
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(Washington)
Treasury Secretary Janet Yellen released bits of the Biden administration's Future Tax plan…see the full story on our partner Magnifi’s site
Goldman Says to Buy These Three Great Energy Stocks
Written by FINSUM
(Houston)
The turnaround that energy prices have seen over the last year are simply astounding. This time last year prices were plummeting and there were incredibly dire demand forecasts. Fast forward to the present and you have a very tight supply-demand picture and legitimate talk of the new commodities “supercycle”. With that in mind Goldman has chosen 3 stocks which they say are going to be winners in the new environment: ConocoPhillips (COP), Devon Energy (DVN), and Hess (HES).
FINSUM: Both Devon and Hess are primarily exploration and production companies, which means they are very tied to headline oil prices. Given the tightness of supply, it makes sense they could benefit nicely.
(Houston)
The onset of the pandemic had weak demand for about every good in the U.S. except…See the full story on our partner Magnifi’s site.
(New York)
Commodities have been doing great this year. The big rise in demand coupled with weak supplies because of COVID have led to a surge in prices. However, one bright spot—metals—might have some trouble looming on the horizon. There is increasing speculation that the US may scrap pennies. If that happens, it could put a dent in the copper and zinc markets. This dent would not only come from a lack of new demand, but the fact that pennies would be taken out of circulation and recycled. This would amplify the effect by boosting supply to the system and lowering demand for newly-mined metal.
FINSUM: This might have a strong psychological effect even though the total quantity of zinc from pennies accounts for less than 4% of total annual output.