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  • Roger S. Conrad

A Recession Won’t Repeal the Energy Cycle

By Roger S. Conrad on Jun. 17, 2022

Let’s be clear. Neither oil and gas prices nor energy stocks will be immune if the global economy slides into recession later this year. And damage to prices would be compounded if Russian, Iranian and/or Venezuelan oil re-enters the market in a meaningful way.

But that said, what the Federal Reserve and other central banks are attempting now to quell inflation will not end the energy up-cycle that began in spring 2020. Neither would a return to the market of supply from what are currently pariah countries.

In fact, any energy sector retreat we see in coming months is far more likely to result in the long-term cycle being both longer and stronger. And means much higher prices for favored stocks than we saw at the top of the up-cycle that ended in 2014.

The key is investment, or rather the lack of it. Over the past year plus, we’ve repeatedly noted how energy companies’ CAPEX on everything from new reserves and production to infrastructure has badly lagged that of previous price cycles.

Rather than meaningfully boost output and capacity, producers and midstream companies have deployed their rising free cash flow to slash debt and reposition operations to reduce risks. And once they’ve met targets, companies have returned money to shareholders by buying back stock and raising dividends.

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor