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Elliott Gue knows energy. Since earning his bachelor’s and master’s degrees from the University of London, Elliott has dedicated himself to learning the ins and outs of this dynamic sector, scouring trade magazines, attending industry conferences, touring facilities and meeting with management teams.

Elliott Gue’s knowledge of the energy sector and prescient investment calls prompted the official program of the 2008 G-8 Summit in Tokyo to call him “the world’s leading energy strategist.”

He has also appeared on CNBC and Bloomberg TV and has been quoted in a number of major publications, including Barron’s, Forbes and the Washington Post. Elliott Gue’s expertise and track record of success have also made him a sought-after speaker at MoneyShows and events hosted by the Association of Individual Investors.

Elliott Gue also contributed chapters on developments in global energy markets to two books published by the FT Press, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity and Rise of the State: Profitable Investing and Geopolitics in the 21st Century.

Prior to founding the Capitalist Times, Elliott Gue shared his expertise and stock-picking abilities with individual investors in two highly regarded research publications, MLP Profits and The Energy Strategist, as well as long-running financial advisory Personal Finance.

In October 2012, Elliott Gue launched the Energy & Income Advisor, a semimonthly online newsletter that’s dedicated to uncovering the most profitable opportunities in the energy sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

The masthead may have changed, but subscribers can expect Elliott Gue to deliver the same high-quality analysis and rational assessment of investment opportunities in the energy patch.

Articles

Whither the Inflection?

Despite recent volatility in the broader market, the S&P 500 Energy Index managed to eke out a slight gain in March—an encouraging sign of relative strength. Nevertheless, the sector is down 6.8 percent on the year after traders took advantage of the sharp rally from mid-December to the end of January to sell the rip.

With energy stocks generally trading at undemanding multiples, the big question centers on what catalysts might prompt generalists and value-focused investors to allocate more capital to the sector on a sustainable basis. The answer requires a consideration of the factors keeping investors on the sideline.

Energy stocks appear to be suffering from a case of déjà vu, having burned generalist portfolio managers too many times during the down-cycle. Stable oil prices and mounting evidence of a balanced global oil market will be critical to shifting investors’ perception of the group, though this process will take time.

Commodity prices have remained supportive this year, with West Texas Intermediate (WTI) crude oil averaging more than $62 per barrel, compared with $51 per barrel in 2017.

Against this backdrop, the Bloomberg consensus revenue estimate for energy stocks in the S&P 500 has increased by a median of 4.1 percent over the past three months, one of the largest positive revisions and above the 0.9 percent bump for the overall index.

But higher prices and higher sales estimates haven’t been enough to lure investors back to the energy sector, reflecting all the false dawns that have occurred in the oil market since 2014.

When will the market come around to our view on the oil market and grow comfortable with the sustainability of current oil prices? Therein lies the question. Sticking with the names on our Focus List should ensure that you’re well-positioned for when sentiment turns.

Embracing Relative Strength and Avoiding the Land Mines

Oil prices fell alongside the stock market during the late January to early February selloff as part of a global risk-off trade. Oil prices have also recovered alongside the S&P 500 since the Feb. 9 low.

We remain sanguine about crude-oil prices over the short to intermediate term. Backwardation in the Brent futures curve continues to point toward a tight supply-demand balance. Twelve-month Brent futures trade at a discount of $3.76 per barrel to the front-month contract, just off the January high of $4.56 per barrel.

That said, we don’t expect oil prices to rally to $70 or $80 per barrel. Such a move would be self-defeating, as the surge in shale production would overwhelm demand.

At the same time, we don’t expect a repeat performance of last year’s big selloff back into the $40s per barrel. OPEC and Russia remain disciplined on their supply agreement, and tight labor and services markets in the North American oil patch are raising costs for shale producers. At the same time, investors are demanding greater capital discipline, which means producers require higher prices to incentivize stepped-up activity.

Recent disruptions in Libya and plummeting Venezuelan production—down 300,000 barrels per day since September alone—represent additional potential upside catalysts for oil prices this year. We expect WTI to average about $60 per barrel this year.

Although the upside potential in oil prices appears limited, energy equities offer a better risk-reward proposition. The stocks on our Focus List remain our favorite bets and have held up well in a challenging tape and an earnings season filled with land mines.

Déjà Vu for the Oil Market and Energy Stocks?

Last week’s spike in volatility was difficult for every investor, especially after a period of unprecedented placidity during which many market participants forgot the terror that these swoons can induce, even if US equities were overdue for some profit-taking.

For better or worse, the highs and lows of this down-cycle have accustomed energy-focused investors to bouts of sharp volatility. Nevertheless, the selloff in energy stocks was still harrowing, with the S&P 500 Energy Index giving up all the gains it had chalked up in the first month of the year.

Energy stocks appear to be suffering from a case of déjà vu. Last year, the sharp recovery in US crude production and the oil-directed rig count, coupled with money managers taking profits on their sizable long positions in Brent and West Texas Intermediate (WTI) futures, conspired to send WTI tumbling to as low as $42 per barrel.

On the surface, a similar dynamic is at play today.

 

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  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Coverage Universe

      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

    • MLP Ratings

      Our assessment of every energy-related master limited partnership.

    • International Coverage Universe

      Roger Conrad’s coverage of more than 70 dividend-paying energy names.

    Experts

    • 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