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  • Roger S. Conrad

Eyes on the Energy Cycle

By Roger S. Conrad on Dec. 18, 2020

Sustained crude oil prices in the $50 to $60 per barrel range next year might not sound like a big deal. In fact, it wouldn’t represent much of a gain from the mid-to-high 40s range held by North American benchmarks lately. And Brent crude is already mostly there, depending on what measurement you use.

A return to that level of oil prices in 2021 would, however, represent a massive change from the environment of the past year. And it would be a major departure from the generally downtrending direction of prices since the energy bear market began way back in 2014.

More important, our view is 50s oil would also be a powerful catalyst for a shift in investor psychology regards the energy sector. It’s true that we’ve seen that level before many times in the past six years. And while a bounce to $50 plus was enough for many energy stocks to stage a big recovery in 2016-17, staying there wasn’t to prevent flat lining and later falling share from second half 2019 into 2020.

What’s different now, however, is where we are in the energy cycle. Mainly, back then we hadn’t seen the massive contraction of sector investment, which has now sown the seeds of future scarcity.

Neither had we seen the massive contraction in the number of viable companies up and down the North American energy value chain. And the best in class were still a lot more interested in business expansion than in operating at a level where they’d generate free cash flow.

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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