Eq: Energy

Eq: Energy (120)

Monday, 10 April 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.


Wednesday, 22 March 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.

Sunday, 12 March 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.

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.

With ESG investors pressuring companies to transition to sustainable businesses, BP’s chief executive Bernard Looney is warning that the energy transition needs to happen in an orderly fashion or else oil and gas prices will spike if supply is cut too quickly without a drop in demand. Looney stated the following at the recent International Energy Week event in London, "Reducing supply without also reducing demand inevitably leads to price spikes – price spikes, leads to economic volatility." He added that we need, “Affordable energy flowing where and when it's needed... Investing in energy security and the energy transition. This is Looney’s second warning for the need for an "orderly transition.” In early February, he stressed "an orderly" transition when he announced that BP would be producing more oil and gas for longer, and now aims for a fall of 20% to 30% in emissions from the carbon in its oil and gas production in 2030 compared to a 2019 baseline, lower than the previous aim of 35-40%. At the London event, he also noted that “People today want an energy system that works. That provides secure, affordable, and low-carbon energy - what the Energy Institute calls the triple energy crisis."

Finsum:At a recent energy event in London, BP CEO Bernard Looney warned for the second time that the energy transition needs to happen in an orderly fashion or else oil and gas prices will spike.

Friday, 03 February 2023 06:25

Analysts: Big Oil Has Passed its Peak

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After two years of surging growth, this earnings season could mark the beginning of energy company profits coming back down to earth. That is according to Wall Street analysts who believe Big Oil has passed its peak. However, the ride down is expected to be slow, with companies still expected to bring in large profits for some time. Last year was a boon to oil and gas companies. The energy sector ended the year up 64.56% as sky-high oil and gas prices were one of the largest contributors to inflation. The sector thrived with a hawkish Fed, high inflation, economic uncertainty, and Russia’s invasion of Ukraine. But analysts don’t believe this will continue for much longer. HSBC Global Research analysts wrote in a note that “Although 2023 should remain a solid year for the integrated oils, there is less headroom than we envisaged just a couple of months ago given the correction in oil prices and halving in European gas prices.” In addition, Bank of America estimates that earnings for the fourth quarter from oil and gas producers will be down 11% from third-quarter levels. Doug Leggate, a Bank of America research analyst, wrote in a recent note that “In our view, upcoming earnings for the US oils will be one of the most consequential in several years. It is now clear that the best quarter for many US oils has passed.”

Finsum:While oil and gas companies thrived in last year’s conditions, Wall Street analysts think profits will eventually come back down to earth due to a recent correction in oil prices and the halving of European gas prices.

Wednesday, 25 January 2023 11:55

Surveys: Higher Oil Prices Expected in 2023

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Oil stocks were some of the best investments last year as the energy sector gained 64.56%. Oil stocks could once again have another good year if oil prices rise as investors and firms expect them to. According to the latest Bloomberg MLIV Pulse survey, both professional and retail investors see higher oil prices over the next six months, with retail traders, in particular, even more bullish than professional investors. Investors are not alone in predicting a rise in oil prices. The Federal Reserve Bank of Dallas recently surveyed 152 energy firms in Texas, Louisiana, and New Mexico. Based on the results of the survey, the industry is expecting marginally higher oil prices in 2023. When asked what they believe the price of WTI would be at the end of the year, the average answer was $84 per barrel. The spot price for WTI was $73.67 at the time of the survey. The are several reasons for companies and investors to be bullish on oil this year. Oil prices could rise on optimism that China reopens its economy after implementing severe COVID restrictions. In addition, both OPEC and the International Energy Agency (IEA) see the global oil market tightening in the second half of the year. With the supply of global oil below the demand, prices should rise.

Finsum:Both investors and energy firms expect the price of oil to rise based on China's reopening and OPEC and IEA’s view that the global oil market is tightening.

In a year when almost every S&P 500 sector was in the red, the energy sector surged 64.56%, according to S&P data. While the portfolios of energy investors looked great, energy bills for the home were another story. High energy prices took a bite out of the household budgets for many. However, a reversal seems to be in play this month. The energy sector is now under pressure as natural-gas prices have fallen more than 60% from their 52-week high due to a warmer-than-expected winter. While energy prices falling is good for household budgets, it’s bad news for energy stock investors. Matt Portillo, head of research at Tudor, Pickering, Holt, told Barron’s that “The warmer-than-expected winter pulled forward the expected decline in natural gas price. Stocks could fall an additional 20% to 30% until they find a bottom.” Wall Street analysts expect more volatility in natural-gas prices in the months ahead, but patient investors can look forward to better valuations for energy stocks in the second half of the year. Paul Diamond, an analyst at Citigroup, wrote in a note Tuesday that “We expect the coming volatility to present a better entry point than is currently available and expect recent volatility to persist through the winter, at which point eyes will turn to the build for next winter.”

Finsum:With natural gas prices falling due to a warmer-than-expected winter, energy stock prices have taken a hit, which could lead to more attractive valuations in the second half of the year.

Thursday, 29 December 2022 06:28

ESG Performance in 2023 May Depend on Oil

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While ESG has continued to come under fire from both politicians and regulators, ESG fund assets have continued to grow. In fact, sustainable fund assets grew 0.84% through November, which is better than the 1.1% decline for all funds, according to Morningstar. However, the performance of these funds has not been great; but that's not due to political or regulatory pressure. According to analysts, the reason that ESG funds have underperformed this year is that they missed out on the best performing sector this year, which was energy. ESG funds typically don’t hold stocks of oil companies such as ExxonMobil and Chevron that have performed so well this year. According to Morningstar, the average large-cap stock ESG fund has lost nearly 20% through Dec. 21st. That’s about 2.4% worse than the S&P 500 Index. The question is, will that continue into 2023? The answer depends on whether oil companies will continue to outperform. Energy strategists differ in their opinions. Morningstar energy strategist Stephen Ellis thinks it’s unlikely, since “we see the stocks as fairly valued to expensive,” while Fidelity portfolio manager Maurice Fitzmaurice wrote recently “that oil and gas demand should keep growing as effects of the Covid pandemic pass, while lost supplies from Russia prod oil prices to rise.”

Finsum:The performance of ESG funds next year will likely depend on whether oil companies will continue to outperform.

Thursday, 22 December 2022 03:52

Analysts Increasing Estimates for Energy Stocks

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There’s no question that energy was the best-performing sector this year in what was a dismal year for equities. But how will the sector fare in 2023? If analyst expectations are correct, we could be in for another great year for energy stocks. According to FactSet data, analysts have increased estimates for only two sectors next year, energy and utilities. EPS estimates for energy stocks have seen a 4.4% rise in expectations, while utility stock estimates have risen 0.9%. This is in stark contrast to the other 9 sectors in the S&P 500, where analysts have been trimming their earnings per share forecasts for 2023, with downward revisions between September 30 and November 30. Due to these upward earnings expectations and relatively cheap valuations, energy stocks are poised to continue their rise next year, even as oil prices have pulled back from the year’s highs. Oil companies have been cautious despite the surge in oil prices earlier in the year. CIBC Private Wealth U.S. Sr. Energy Trader Rebecca Babin told Yahoo Finance Live that companies “are not making rash decisions about increasing production based on swings in oil prices. They are less levered. They are more disciplined, and they are super focused on returning to cash.” Plus, market strategists expect oil to move higher next year with China expected to reopen its economy after years of COVID closures.

Finsum:Energy stocks are expected to continue to move higher next year due to increased analyst estimates, relatively cheap valuations, and higher demand for oil by China.

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