Oil prices fell alongside the stock market during the late January to early February selloff as part of a global risk-off trade. Oil prices have also recovered alongside the S&P 500 since the Feb. 9 low.
We remain sanguine about crude-oil prices over the short to intermediate term. Backwardation in the Brent futures curve continues to point toward a tight supply-demand balance. Twelve-month Brent futures trade at a discount of $3.76 per barrel to the front-month contract, just off the January high of $4.56 per barrel.
That said, we don’t expect oil prices to rally to $70 or $80 per barrel. Such a move would be self-defeating, as the surge in shale production would overwhelm demand.
At the same time, we don’t expect a repeat performance of last year’s big selloff back into the $40s per barrel. OPEC and Russia remain disciplined on their supply agreement, and tight labor and services markets in the North American oil patch are raising costs for shale producers. At the same time, investors are demanding greater capital discipline, which means producers require higher prices to incentivize stepped-up activity.
Recent disruptions in Libya and plummeting Venezuelan production—down 300,000 barrels per day since September alone—represent additional potential upside catalysts for oil prices this year. We expect WTI to average about $60 per barrel this year.
Although the upside potential in oil prices appears limited, energy equities offer a better risk-reward proposition. The stocks on our Focus List remain our favorite bets and have held up well in a challenging tape and an earnings season filled with land mines.
Yesterday the Federal Energy Regulatory Committee (FERC) announced that it would no longer permit master limited partnerships (MLP) to recover an income tax allowance in the cost-of-service rates on interstate pipelines. We explore the risks and opportunities created by this policy change.
Equity issuance by master limited partnerships (MLP) has fallen off a cliff this year, but these names have stepped up their sales of bonds and preferred units.
A lack of market depth means that some of the highest-quality master limited partnerships have struggled to gain traction this year, helpting to explain why many of this year's top performers come from off the beaten path.
In the past, we’ve argued (correctly) that market participants and investors who bet against the resilience and potential upside in US oil production do so at their own peril. However, with the market now accustomed to these upside surprises, investors shouldn’t overlook the potential constraints on US production growth.
NuStar Energy LP's 45 percent distribution cut provides yet another sign of the changing of guard underway in the midstream industry. That said, amid all this pain, we remain selectively bullish on master limited partnerships.
Fourth-quarter earnings season was anything but uneventful for some of our Portfolio holdings.
Our stock selection in the upstream segment has proved fortuitous in an earnings season where the market has punished companies that reported disappointing results and/or guidance.
We narrow our Focus List and dig deep into our picks' fourth-quarter results to kick the tires on our investment theses.
Fourth-quarter earnings season is in full swing. Recent results and developments have prompted us to adjust our buy targets on a few holdings.
he S&P 500 may have reached new highs in 2017, but our call for a bumpier ride couldn’t have been more wrong: The index hasn’t experienced a correction of more than 5 percent since summer 2016—the longest uninterrupted rally in its history. We explain our base case for US equities in 2018.
Elliott and Roger on Feb. 27, 2018
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.