Since our previous issue of Energy and Income Advisor, oil prices have ticked back over $50 a barrel. And the combination of last year’s literal industry-wide investment freeze with energy demand rising faster than expected means they’ll stay there in 2021, with a possible run into the 60s at some point.
How much of what we’ve already seen for energy prices is priced into sector stocks? The last time oil was firmly over $50, back in February 2020, Enterprise Products Partners (NYSE: EPD) traded roughly one-third higher than it does now. The same was true for fellow Model Portfolio holding ExxonMobil (NYSE: XOM).
So was high quality midstream Magellan Midstream Partners (NYSE: MMP). So were leading oilfield services company Schlumberger Ltd (NYSE: SLB) and Concho Resources (NYSE: CXO), which fetched what’s since become a high premium takeover bid from ConocoPhillips (NYSE: COP).
This week, the incoming Biden administration filled out much of its prospective energy and environment team with pragmatists,signaling a focus on incremental measures rather than the dramatic and disruptive.
In investing, economics always wins over politics. That’s worth remembering at a time when energy midstream and pipeline companies are unloved by investors, and many advisors and media personalities forecast sector doomsday.
Despite the worst market conditions for US midstream companies in at least a generation, stability and sustainability were the themes of Kinder’s Q3 results and guidance this week.
What do super major oil company Chevron Corp (NYSE: CVX) and leading US rooftop solar installer Sunrun Inc (NSDQ: RUN) have in common? They’re on the leading edge of a building wave of energy mergers and acquisitions.
After a series of rulings rejecting federal permits for new pipelines, the US District Court for D.C. actually threw out one for an already operating one. The result: An order to immediately shut down the $3.8 billion Dakota Access Pipeline, which transports oil from the Bakken shale of the upper Midwest.
In the previous issue of Energy and Income Advisor, we stated our view that prospective changes in energy policy in 2021 would not be catastrophic for the oil and gas industry, regardless of who won the Georgia runoff elections for the US Senate.
There were no dividend cuts announced in our coverage universes since the previous issue of Energy and Income Advisor.
Energy is arguably the most deeply cyclical industry in the S&P 500 and the downcycle that started in 2014 has been the deepest downturn the industry has faced since at least the second half of the 1980’s.
What development from 2020 will have the greatest impact on energy returns in 2021? The big oil collapse in Q2 2020 is the key development this year that’s completely reset the supply equation for 2021 and beyond.
There were no dividend cuts announced in our coverage universes since the previous issue of Energy and Income Advisor. That’s because declaration dates for winter payouts aren’t until next month. But there is growing reason to expect far fewer reductions this year than in 2020, or in fact any year since oil prices first broke under $100 per barrel for the cycle back in mid-2014.
Elliott and Roger on Jan. 29, 2021
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