Derrick crude oil pumps in Luling, Texas, USA (Photo by Dave Creaney / Anadolu Group via Getty … [+]
Anadolu Group through Getty Images
There is good information on the pummeling of the oil market in 2020 and a subsequent decline in energy stock valuations. As the global pandemic of Covid-19 triggered an economic downturn – following national locks, loops of movement and lower consumer confidence – crude oil prices took an inevitable blow.
Many did not think that general economic and social malaise would bring oil prices to negative territory, but it did short on April 20, 2020. That did not last long; and WTI futures ended the year down 21% on levels recorded on January 2, 2020 at $ 48.52 per barrel, while Brent ended 22% lower each year at $ 51.80 per barrel.
Doomsday crude demand decline forecasts of 20 million barrels per day (bpd) on 2019 levels were also unfounded with the actual figure likely to be around 9 million bpd. While that still undermines around a decade of demand growth, a kickback in 2021 is likely to be equally strong in helping to alleviate human and economic downturn courtesy of distribution of Covid-19 vaccines.
Even if a recovery in aviation fuel demand is unlikely in the eyes of some by 2024, petrochemical, industrial and emerging / ex-OECD ground transportation demand will help to outperform the market. That recovery will be relatively small due to supply side pressures, regardless of whether or not OPEC + as non – OPEC crude output sees a rise in Brent $ 50-plus prices.
U.S. stone is still injured but not dead, and will contribute to the counting of non-OPEC barrels. In addition, the U.S. incoming Joe Biden administration may have been instrumental in encouraging a small increase in Iranian barrels on the market.
Based on that demand-supply dynamics as I see it to be for 2021, it appears that the average oil price of $ 55 uses Brent as a benchmark. While it may be a level of disappointment for some within the OPEC ranks, for many international oil companies (IOCs), it will do just fine. It also has the potential to reverse oil and gas sector prices, as despite the relentless din about the age of oil is over; it will not be over in the next 12 months.
On my average sampling of major oil and gas stocks, 2020 valuations fell to an average of ~ 35% if you include a fortune Saudi Aramco (TADAWUL: 2222) where stock price rose 9.55% to SAR35 ($ 9.32) over the past 12 months. However, I do not think that the company, which has only 1.5% minuscule publicly listed on domestic exchange, is an accurate barometer of energy stock prices and market direction.
Without Aramco, the stock valuation decline in my sample segment is closer to 39% – something that more reflects a knee-jerk reaction to the Covid-19 decline rather than a near-term change in energy market fundamentals with permission from focus increase on electricity and electricity transmission with renewable energy.
Even though transportation and human movement are considered to be the only criterion of crude consumption, it is accepted that oil would be pulled out of energy in the short term. For that reason, 2021 is likely to see double-digit movements in energy stock prices as high as 15% or higher over the next 12 months with a $ 55 Brent price; recover almost half of the value they lost.
It will not benefit everyone. That’s largely down to their own tepid property portfolio, barmy financial decisions, and the lack of process optimization and internal transformation that precedes the epidemic. This is indicated by Occidental Petroleum (NYSE: OXY) saw its value fall 60% year-over-year to December 30, 2020 when yield fell from the illegal takeover of Anadarko Petroleum.
Bigger players like market behemoth ExxonMobil
XOM
(NYSE: XOM / down 41% y / y) and Dutch Royal Shell (LON: RDSB / down 44% y / y) has suffered in addition to visible market sentiment, if not failing, when it comes to corporate transformation and major asset depreciation.
(Photo by Spencer Platt / Getty Images)
Getty Images
I’m not sure Occidental is out of the woods yet, and although it looks like Exxon and Shell will see a reversal in fortune; such a conversion will not be to the size of some of their peers who appear to be more attractive investors.
These include – Chevron
CVX
(NYSE: CVX / down 30% y / y) and BP (LON: BP / down 47%) – both based on portfolio changes and operational optimization could post-valuation well above 15% by end-2021. They also seem to be pretty cheap, especially BP on the current valuation going into Q1 2021.
Energy stock should be the second choice among the big players ConocoPhillips
COP
(NYSE: COP / down 39% y / y) and Total (FPA: FP / down 29%), which may post appreciation in the 12-15% range. If midcaps appear more attractive, Corp. Hess
HES
(NYSE: HES / down 22% y / y) should be on your radar.
In addition, indirect medium-term exposure through energy investment trusts, for example the Blackrock Energy and Resources Income Investment Trust (LON: BERI), may be an option, and a detailed analysis on smallcap research and production opportunities. Overall, energy companies with lower equilibrium rates and balanced banking concerns will be rewarded for innovation and business transformation in 2021, especially with oil price levels likely to be on average higher. than in 2020.
The point is that a recovery in oil and gas stock valuations would not be the same in 2021, and some may not recover at all – but there will be complete connections across the region to take advantage.
Disclaimer: The above statement is intended to stimulate discussion based on the author’s opinion and analysis offered in a personal post. Trading oil and gas stocks, futures, options or yields is not an attempt, recommendation or investment advice. Oil and gas markets, and equities can be very volatile and attitudes in the sector can change immediately and without warning.