Despite talk of a trade war, an OPEC-Plus agreement to boost oil production starting this summer and a rally in the US dollar, Brent oil prices ended the second quarter just under $80/bbl, the highest level since late 2014.
Even better, energy stocks were the top-performer in the S&P 500 for the second quarter with the S&P 500 surging 13.5% compared to a gain of just 3.4% for the S&P 500.
Over the past few years, oil prices and energy stocks have experienced numerous false dawns when investor attempted to call a bottom only to get burned as it became clear supply and demand fundamentals for oil remained weak.
We continue to believe this move is for real and, unlike most rallies over the past few years, it’s supported by real improvements in fundamentals. And, ironically, the OPEC-Plus agreement to boost output in late June may be the most bullish development for the energy patch in more than 4 years.
However, dangerous abound due to rapid changes underway in the global energy patch and it remains important to be selective.
Over the past two weeks the big story in energy markets has been oil price differentials, which was a major theme at this year's MLP and Energy Infrastructure Conference (MEIC) conference. However, scratch beneath the surface and there’s a lot more going on.
You can learn a lot about an industry by listening to earnings conference calls, digging into the quarterly numbers and financial results, but there's no substitute for boots-on-the-ground research.
The potential for OPEC to scale back its production agreement doesn't spell doom for oil prices.
Automakers and battery manufacturers aren't the best options for investors seeking to profit from electric vehicles.
The recent rally in oil prices has helped the exploration and production companies on our Focus List to catch up with the commodity. However, we continue to find favorable risk-reward propositions in the midstream space as we prepare for the MLP Association's annual investor conference.
The OPEC-Plus decision to boost oil production is one of the most bullish developments for the global oil market since the crude oil bear market kicked off four years ago. While it might seem counterintuitive to say that rising global oil output could be positive for prices, the key is to focus on spare capacity and the growing risk the world could face a real supply shortfall by early 2019. Spare capacity is defined as oil production that can be brought online within 30 days and sustained for 90 days. In other words, spare capacity represents mothballed fields or wells that are not currently producing oil but could be brought online quickly to meet “shocks” such as temporary disruptions in global oil supply or tanker traffic.
Energy & Income Advisor sifts through literally hundreds of energy companies from around the world to separate the best from the rest. You can check out key metrics for each along with our comments and advice in the tables under the “Portfolios” tab on the EIA website. The current issue features an updated look at the stocks we cover. Unfortunately, we found a large number of companies we track are still at risk to dividend cuts, along with a handful that are genuine bankruptcy risks. Many of these weaklings have already cut their distributions at least once since oil prices peaked in mid-2014. As a result, they trade at much lower levels than just a few years ago. In an unforgiving market like this one for energy stocks and particularly MLPs, however, another cut would still set off a selling wave. And that’s at the same time stronger companies that have taken their lumps are making gains. The upshot is we want to avoid at risk dividends now as much as ever. To provide an early warning system, we’re initiating ourEnergy & Income Advisor Endangered Dividends List with the 16 companies in our table.
By on Jun. 15, 2018
General Takeaways from the MLP & Energy Infrastructure Conference (MEIC) Roger Conrad (RC): The first thing I think both of us noticed was how much smaller this year’s event was than last year’s, and certainly than it was four years ago in Jacksonville. That was really the peak of the boom for MLPs and I remember how uncomfortable you and I were then about how popular the sector was.
When I analyze any industry group I like to start by attempting to answer one simple question: What are investors looking for? In other words, it’s crucial to understand which quantitative metrics and/or stock characteristics drive stock market returns over time. Answer that one question and you’ll be well-positioned to select stocks that outperform their peers and the broader market.
Simplification transactions—where the general partner and limited partnership merge to eliminate incentive distribution rights—have become all the rage among master limited partnerships (MLP). As part of our efforts to make Energy & Income Advisor more user-friendly, we’ve undertaken a simplification push of our own, consolidating the three model portfolios into a single, actively managed strategy that includes specific position sizes.
Elliott and Roger on Jul. 26, 2018
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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.