Displaying items by tag: carbon

According to Citi, energy stocks will struggle in 2024 due to rising spare oil capacity. This is essentially the amount of oil production that can be quickly brought online and sustained for up to 3 months. Historically, energy stocks have underperformed in years with 3 million barrels per day of spare capacity. 

Currently, estimates are for an average of 4 million barrels per day of spare capacity. Due to this, the bank is forecasting oil prices to end 2024 in the low $70s. It notes that despite the formation of OPEC+, spare capacity has continued to rise with 80% of the growth coming from the US. 

YTD, oil prices are down by 4%, while energy stocks are lower by 3% despite production cuts by OPEC. Citi sees OPEC continuing to act to support the price of oil, but it will have to sacrifice market share to do so, especially given that current prices continue to support capacity growth. 

In terms of positives for the sector, it notes that many companies in the sector are in a strong financial position which makes them less sensitive to the higher-rate environment. Additionally, there has been a surge of M&A activity in the sector which should also support valuations. 


Finsum: Energy stocks have underperformed in 2023 amid falling oil prices. Citi sees this continuing in 2024 especially with increasing spare capacity. 

Published in Eq: Energy
Thursday, 07 December 2023 11:13

Oil Prices Fall Despite OPEC Production Cuts

In an unexpected twist, crude oil prices declined following the OPEC meeting which ended with an announcement that there would be more production cuts in Q1 of next year. Following the Thursday meeting, oil prices fell by more than $2 and this weakness continued into Monday’s session. Since late September, WTI crude oil has dropped from the low $90s to the low $70s. 

 

The bearish reaction is likely due to the market already expecting that some sort of cuts would be announced. Further, these cuts are of a voluntary nature. Many are skeptical that there will be enough discipline among members especially given that there has been dissension at recent meetings.

 

In their statement, OPEC announced voluntary cuts totalling 2 million barrels per day. The committee also signaled concerns over weaker demand in 2024. In terms of specifics, Saudi Arabia will cut 1 million barrels per day and another 300,000 of cuts will come from Russia. However, the lack of details is adding to uncertainty over whether these cuts will actually take place especially given that smaller OPEC members have large reliance on oil revenue and tend to be unreliable, when it comes to production discipline. 


Finsum: Crude oil prices declined following last week’s OPEC meeting. This is despite members agreeing on voluntary production cuts. 

 

Published in Eq: Energy
Wednesday, 29 November 2023 14:56

Oil Prices Under Pressure As OPEC Unity Under Pressure

Oil prices were marginally higher headed into this week’s Organization of the Petroleum Exporting Countries (OPEC) meeting, following a decline upon the news that the meeting had been delayed. 

 

According to reports, this delay was due to divisions among OPEC members when it came to further production cuts and restrictions on output. It’s an indication of clashing interests and incentives. As a collective, OPEC’s best interest is to reduce output to ensure that oil prices stay as high as possible. As individual countries, each country is incentivized to produce as much oil as possible to maximize revenue.

 

Another factor weighing on oil prices is expectations that demand will be weaker than expected in 2024 due to a slowing global economy particularly in Europe and Asia. Deutsche Bank recently warned that there is a strong possibility that the US falls into a recession next year. China’s economy remains stagnant more than a year after Covid protocols have been relaxed. 

 

Iranian oil also continues to flood the market despite sanctions on these countries. Iranian production is reportedly at a 5-year high, although there are some who believe that sanctions may be more aggressively enforced due to the conflict in Hamas. 


Finsum: Crude oil prices have dropped $20 over the last few weeks. One factor has been a lack of unity among OPEC member nations around production cuts.

 

Published in Eq: Energy
Tuesday, 31 October 2023 03:41

Expect Further Consolidation in the Energy Sector

This month has seen two major takeovers in the energy sector as Exxon bought Pioneer Natural Resources for $59.5 billion, while Chevron announced that it would buy Hess for $53 billion. Exxon significantly boosted its North American energy production and reserves with the acquisition, and Chevron added a mix of domestic and international assets. Many are speculating that these moves will trigger more M&A activity in the space.

 

This follows a slight slowing of M&A among oil E&P companies in Q3 as there were 25 deals worth $14 billion. To compare, there was $24 billion of M&A activity in Q2 of this year and $16 billion in Q3 of last year. 

 

Of course, these deals are dwarfed by the size of Exxon and Chevron deals. According to a report by Enervus, "As anticipated, the pace of consolidation slowed for private E&Ps as the cream of the crop in terms of scale and quality has largely, but not entirely, been bought out. The next logical step in consolidation is more tie-ups between public producers."

 

Enervus anticipates more dealmaking among smaller companies in the sector especially in the shale patch. Additionally, larger independents could target smaller and midsized mergers with some candidates including Devon Energy, Marathon Oil, Chesapeake Energy, and Southwestern Energy. 


Finsum: There were two mega-deals in the energy sector this month. Here’s why this could trigger a wave of M&A in the sector.

 

Published in Eq: Energy

Alternative energy is forecast to grow rapidly in the coming years due to government subsidies and continued innovations which continue to drive power-generation costs lower. However, the bottleneck for the growth of the industry is proper infrastructure to store and transmit this power.

 

It’s also necessary as some types of alternative energy production such as wind, solar, and hydropower are adversely affected by weather. Until this goal is sufficiently solved, the world will continue to remain dependent on fossil fuels. 

 

Investors have several options when it comes to investing in the growth of the energy storage industry. One is to own stocks of companies in the supply chain whether it means producers of metals like Albemarle, EV and battery producers like Tesla or BYD, or a provider of energy storage software, solutions, and services like Fluence Energy. 

 

Another option is to invest in ETFs like the Global X Lithium & Battery Tech ETF (LIT), the First Trust Nasdaq Clean Edge Smart GRID Infrastructure ETF (GRID), or the First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN). These are diversified, lower-cost ETFs that offer exposure to the energy storage theme and offer exposure to the largest companies in the space. 


Finsum: Alternative energy is booming, but it also requires sufficient investments in energy storage to support its growth. 

 

Published in Eq: Energy
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