Displaying items by tag: Commodities
Why Oil is Surging
(Houston)
We tend not to write too much about oil, the reason being our readers don’t seem too interested in it. However, the market has quietly seen a really resurgence over the last year or so, and has risen dramatically from lows in the $20s in 2016 to $75 now. The core reason why is that a booming global economy has pushed up demand for oil (to the tune of 5 million barrels per day), which has largely cleared the glut of oil inventories that had been plaguing the market.
FINSUM: The big question now is whether OPEC maintains the supply cuts. It is worried about higher prices inducing increased production from rivals, but the reality is that Saudi Arabia needs oil prices to stay high right now for several reasons (e.g. IPOing Saudi Aramco, domestic social and economic reforms etc).
Four Stocks to Defend Against Rising Rates
(New York)
One of the market’s big fears at the moment is rising rates. Inflation is rising and the Fed is poised to hike rates three times this year. With that in mind, Barron’s has chosen some stocks that will help defend your portfolio against jumping interest rates. Stock with good dividends tend to perform poorly in rising rate periods, but if you are looking for good-yielding stocks which will continue do well, look at commodity-related companies, whose free cash flow can maintain dividends. Exxon Mobil, Schlumberger, General Motors, and Kimberly-Clark all look set to do well.
FINSUM: So what sets these stocks apart is that their dividends look sustainable AND they have attractive valuations, both of which make them more likely to perform well.
Why the Oil Market is Doomed
(New York)
Until the market downturn over the last couple of weeks, the oil price had been rising strongly for a period of several months. OPEC’s strategy to cut supply to the market seemed to have balanced supply and demand, which boosted prices. However, one big beneficiary of the cuts was the US shale industry, which has been boosting output to the highest levels ever. This big surge might be the ultimate unwinding of the price rise, however, as US output is surging to levels not seen since oil was at $100 per barrel. This is likely to once again flood the market with supply, sending prices back downward.
FINSUM: We think this oil output growth is unsustainable, both because it will lead to oversupply, but also because it will eventually crack OPEC’s resolve to contain their own output (as the benefits are disproportionately flowing to the US).
3 MLPs for Right Now
(Houston)
MLPs can perform well during periods of rising rates, such as in the last tightening cycle. While they are broadly more risky than bonds, they can provide good returns. Many MLPs collect inflation hedged payments, so they should perform better than bonds in a tightening environment. As an asset class, MLPs have been holding back on payouts, but these should accelerate in 2019 and 2020. Three names to look at are Enterprise Product Partners, yielding 6.1%, Magellan Midstream Partners, yielding 5.2%, and Antero Midstream Partners, yielding 4.8%.
FINSUM: Those yields look really juicy don’t they? And they are moderately inflation hedged, which is also quite promising. Worth a look.
Why Oil Will Tumble Soon
(Houston)
Oil prices have done very well over the last several months. Prices have been rising at the pump, making producers happier and consumers less so. However, gloomier days may lay ahead. The IEA thinks US shale oil output may soon surge on the back of higher prices. If this happens, it would undue the supply reduction OPEC’s cuts have created and send the market downward. Additionally, it would likely lead to an unwind of OPEC’s cuts, as if they were maintained, the reductions would be disproportionately benefitting OPEC’s competitors.
FINSUM: Oil prices have been doing better, but that does not change the fact that world has a fundamental oversupply of oil. This is not a problem by any means, but is a factor that will weigh on prices for years to come.