At the end of 2016, Wall Street analysts’ median forecast called for West Texas Intermediate (WTI) to average $56 per barrel in the third quarter of 2017 and for Brent to approach $60 per barrel by early 2018.
Whereas most investors cheered OPEC, Russia and a handful of other oil-producing countries’ “historic” agreement to cut output, we took a less sanguine outlook in an Alert issued on Dec. 12, 2016:
OPEC would lose credibility next year as the regulator of the global oil market. Meanwhile, WTI will range between $40 and $60 per barrel for at least the next two to three years. In the near term, we continue to expect WTI to tumble to less than $40 per barrel, once these realities become apparent.
In subsequent writings, we called for oil prices to spend much of the next two years between $45 and $55 per barrel, with spikes outside that range ultimately proving to be relatively short-lived.
This macro view has played out thus far, with sentiment on the efficacy of OPEC’s production cut beginning to sour in March, reflecting concerns about the rapid growth in US oil output in the first half of 2017. Against this backdrop, WTI tumbled to about $42 per barrel in June, before enjoying a modest oversold bounce.
With second-quarter earnings season set to begin in earnest later this month, we update take advantage of the pause before the deluge to review and update our outlooks for commodity prices and energy stocks.
The divergent performance between Noble Midstream Partners LP and Hess Midstream Partners LP since their initial public offerings demonstrates what investors value in an environment where energy prices remain lower for longer.
Break-even rates continue to fall across the board in US shale plays, but the efficiency gains that come from exploiting multiple oil-bearing formations with the same infrastructure give the Permian Basin an edge in the battle for market share.
Over the past 12 months, the difference between the top and bottom performers in the Alerian MLP Infrastructure Index amounted to about 60 percentage points. Capturing this upside requires on-the-ground intelligence, which is why we attend the MLPA Association's annual investor conference every year.
Expansions to the Gulf Coast refinery complex will translate into higher ethane demand in the US, creating opportunities for short-term trades and longer-term wealth building.
Enterprise Products Partners LP's acquisition of Azure Midstream Partners LP's gas-gathering and -processing assets marked the latest in a series of deals involving assets in the resurgent Haynesville Shale and the emerging Cotton Valley play. We explore what it all means and whether it's worth placing a bet.
Technical factors suggest that energy stocks could fare better in the back of the year.
Stepped-up drilling activity and declining break-even costs, coupled with weather-adjusted inventory trends, suggest that natural-gas prices will struggle to remain above $3 per million British thermal units for a prolonged period.
After OPEC and other oil-producing countries announced an "historic" production cut in fall 2016, our out-of-consensus outlook called for the recovery in US oil output to surprise to the upside and drag prices lower. This forecast has played out thus far and has become the consensus view. We lean against the crowd once more and explain why oil prices could recover to $50 per barrel or more later this year.
After updating our commentary and ratings for the more than 80 stocks in our International Coverage Universe, we continue to favor midstream names that offer exposure to volumetric growth stories and our top bets on renewable energy. All offer above-average yields that should juice investors' total returns.
Although our outlook for oil prices and the US energy patch favors an overweight position in core midstream holdings, nimble investors can generate alpha in upstream names by buying when oil prices retreat to the low end of their range and taking some profits off the table when they recover. Timing these moves is easier said than done. We highlight our favorite upstream stocks and dream prices to help instill discipline on the buyside.
Elliott and Roger on Jul. 27, 2017
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