A year ago, benchmark oil prices plunged from a high of $75 a barrel in early October to a late December low point of $42 and change. By contrast, Q4 2019 was relatively calm. The North American benchmark hugged the mid-50s before closing out the year in the low 60s.
Despite that relative steadiness, few Wall Street analysts expect favorable earnings comparisons for energy companies with year ago results. One reason is a flood of new associated natural gas supplies hitting the market in 2019, which resulted in Q4 benchmark prices falling to less than half where they traded in the year ago quarter.
But the larger worry weighing on the sector is the pronounced reduction in the national rig count that started in the second half of the year. We’ve commented early and often about North American shale producers’ ongoing conversion to the gospel of generating free cash flow, reversing their long-time practice of maximizing output at any cost.
Recently released Q4 results from some giant oil services providers have flashed a clear warning to investors in US midstream energy companies:There’s a sector-wide stress test in progress, and it’s not likely to let up at least until the second half of 2020.
The Alerian MLP Infrastructure Index has dropped more than 20 percent since late July. The chief catalyst for the most recent decline: Growing concern that falling North American rig deployment will stall oil and gas production in 2020.
What’s it going to take for Energy Transfer LP (NYSE: ET) to get a little respect?
Eagle Ford, Texas-based midstream company Sanchez Midstream Partners (NYSE: SNMP) eliminated its quarterly distributions this week after the bankruptcy filing of its largest customer and general partner, Sanchez Energy Corp (OTC: SNECQ). The important question for most energy sector investors now is where the hammer will fall next.
At a time when the US shale oil and gas industry is getting used to living on less, one corner of the energy sector is still red hot: Liquefied natural gas exports. We continue to be unenthusiastic about this group. Here’s our take on the state of LNG.
EnLink Midstream is cutting its quarterly dividend to 18.75 cents per share starting with the February 13 payment, a roughly 34 percent reduction from the previous 28.3 cents. The company is holding in more cash in response to weaker drilling activity in Oklahoma.
We present our sector-by-sector outlook for energy in 2020 and beyond. We should expect global oil prices to generally hold the same trading range of the past few years and this would actually be a positive upside catalyst for energy stocks going forward.
The current EDL features 20 different companies. Four of them are natural resource producers, three Canadian oil and gas and one of them a coal miner. Their primary risk is simply realized selling prices for their products, and their ability to offset pressures with hedging and cost reduction.
One of the best things about commodity markets – and any sort of “real” asset – is that ultimately prices are based on supply and demand.
If the price of oil is “too high,” there’s a market response – rising production and falling demand – that pushes prices back into line over time.
Of course, oil prices can rise or fall in the short-run due to speculative flows in futures markets; in fact, that’s something we watch closely in Energy & Income Advisor over time.
Elliott and Roger on Jan. 30, 2020
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