Last year, energy investors faced a perfect storm. Demand for refined products collapsed in the face of measures to contain an historic pandemic, at the same time producers abruptly began to prioritize free cash flow over output.
The result was a business meltdown for all but a handful of best in class companies. And even they were forced to dramatically shift strategy, as plunging share prices and pressured credit ratings all but cut them off from capital markets on reasonable terms.
This year is shaping up as a far different animal. Even sector leaders like Portfolio members Enterprise Products Partners (NYSE: EPD), Pioneer Natural Resources (NYSE: PXD) and Schlumberger Ltd (NYSE: SLB) still haven’t made it back to pre-pandemic levels. But we have seen some very impressive gains across the board off the late October 2020 lows. And that price momentum has accelerated so far in 2021.
The ability of benchmark oil prices to sustain levels north of $60 a barrel, natural gas prices firming near $3 per million BTU and improving NGLs spreads should certainly get a great deal of credit for energy stocks’ surge. But the fact that so many energy stocks are still trading below pre-pandemic levels remains an unmistakable sign that investors aren’t convinced oil will even hold above $50 this year, let alone $60.
There’s good reason for that fear. Mainly, since mid-2014 every time oil prices have approached current levels they’ve hit a wall and quickly plunged, the worst being negative prices reached about a year ago.
Trepidation appears to be shared by energy companies as well. None of the early reporters of Q1 results we’ve seen so far have announced significant increases in planned CAPEX. That’s despite the fact that every one so far has beaten expectations handily, and most of them have significantly raised their 2021 guidance significantly as well.
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Jan. 27, 2022
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