Eq: Energy (126)
Goldman Sachs swiftly raised its one-month projection for Brent to $115 a barrel, a $20 price increase from their previous projection. Not only that they say there are still lots of upside risks if there is further disruption or escalation. The only thing that could hold higher oil prices off would be a complete deterioration of demand by the US and Western Europe. More sanctions are upcoming from the west as Russian banks will be banned from SWIFT payment systems. Commodities are also facing higher price pressures with both threats to payment methods for Russian goods and restrictions to Russian commodities to the wider West. On top of all of this shale supply will fail to compensate for the current demand and OPEC+ will have to step in if there is to be any relief in oil prices.
Finsum: This is a good time to by energy bonds as payment streams will surely be in supply with higher gas prices.
Biden Freezes Oil Leases With Prices at All-Time Highs
Written by FINSUM
Oil prices have been rising about as fast as any point in recent time and with Oil prices pushing close to $100 a barrel, President Biden has frozen a whole selection of new Oil leases in order to accommodate green energy policies. This all is imposed based on newly tagged costs to the ‘social cost’ of carbon emissions, attempting to quantify the costs of climate change. However, there is lots of supply price pressure due to both OPEC+ and the Russia-Ukraine tensions.
Finsum: The U.S. needs oil supply now as much as ever, companies are reopening shale drilling sites that were not thought profitable because Oil could hit $100 a barrel.
Biden Freezes Oil and Gas Leases With Prices at All-Time Highs
Written by FINSUM
Oil prices have been rising about as fast as any point in recent time and with WTI prices pushing close to $100 a barrel, President Biden has frozen a whole selection of new oil leases in order to accommodate green energy policies. This all is imposed based on newly tagged costs to the ‘social cost’ of carbon emissions, attempting to quantify the costs of climate change. However, there is lots of supply price pressure due to both OPEC+ and the Russia-Ukraine tensions.
Finsum: The U.S. needs oil supply now as much as ever, companies are reopening shale drilling sites that were not thought profitable because oil couldn’t hit $100 a barrel.
Coal is the forgotten younger child in the fossil fuel categories and in the age of ESG that has been exacerbated. Demand in the U.S. and Euro area has fallen drastically. For example, it's about half what it was a year ago in the U.S., However coals price has steadily grown as it averaged $168 per metric ton in January which is higher than $119 from all of 2021. What's driving that price increase is the shift in usage from West to East. Coal power is expected to grow by 4.1%, 11%, and 12% in China, India, and SEA respectively over the next three years. In many ways, it was the only available energy in developing countries and has prompted changes in supply chains in both Russia in Indonesia.
Finsum: Just because the U.S. has forgotten about coal doesn’t mean it won’t be a critical part of energy production in the next decade.
Oil prices rose closed higher on Monday to cap off big January, in fact it was the largest monthly gain in the last year. West Texas Crude rose to $88.15 a barrel and the sixth straight weekly gain. Fueling the rising prices are the rising tensions on the border of Ukraine and Russia which seem on the brink of war. Sure, OPEC has supposedly ramped up production by 400,000 barrels a day since August, and however, they have once again underperformed in output in January. While the continued on paper output is expected to be approved in the upcoming meeting the fact is the supply is not moving the needle.
FINSUM: The factors pushing oil prices higher are here to stay, and most likely not all priced in, it could be a big bull market for traditional energy in H1 2022.
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.
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(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