Are you looking for a controversial stock? Try great energy – fossil fuels, to be specific.
A combination of supply reductions and demand increases has helped the price of crude oil rise over the past 2½ months. Meanwhile, the realignment by banks – more on this later – points to a special advantage for the biggest players in the industry.
Let’s first see what’s going on with the commodity. Here is a chart showing the movement of ongoing futures contracts for the past month for West Texas Crude Oil (WTI) since the end of 2013:
(Fact sheet)
Here is the action since the end of October:
(Fact sheet)
This is a jump of 51% in 2½ months.
Investors believed in the protest. Here’s how the 11 sectors of the S&P 500 Index SPX,
of the largest U.S. stocks traded during the first half of January, along with data for earlier periods:
Covid-19 vaccines give hope that the world can return to a normal economic growth path, perhaps later in 2021. The winter rise in cases of coronavirus has led the International Energy Agency to reduce its demand forecast for 2021. report was published Tuesday and WTI for delivery in February CLG21,
increased by 1.3% for the day.
Of course, it’s easy to give up oil. The short-term path for oil and natural gas supplies could be rocky from here – until the pandemic turns out to be. And for the very long term, the increased use of electric vehicles does not bode well for the demand for gasoline.
But all the electricity needed for the new electric fleet has to come from somewhere, including power stations that use fossil fuels. Oil and natural gas producers will continue to replenish heavy vehicles, aircraft and ships.
A new form of reclining
Outlines, the old practice of some banks to avoid lending to entire regions, is illegal. But in the world of ESG investing – which stands for environmental, social and governance – businesses try to make sure investors believe they are doing everything in their power to avoid activities that harm the environment, and also society at large. different ways to improve.
This has led to many large US banks, including Morgan Stanley MS,
WFC, Wells Fargo & Co.,
Goldman Sachs Group Inc. GS,
JP Morgan Chase & Co. JPM,
and recently Bank of America Corp. BAC,
to decide not to provide financial support to oil drillers in the Arctic National Wildlife Refuge (ANWR) in Alaska.
The government in Biden could try to reverse President Trump’s decision to reveal the drilling in ANWR. But that does not mean that the big banks will not limit their loans to oil companies drilling in other areas.
In his daily energy report on January 15, Phil Flynn, a senior market analyst at Price Futures Group, wrote that smaller shale oil producers would bear the brunt of banks’ reluctance to lend to the industry.
“In other words, the very ridiculous ‘Big Oil’ companies will get bigger and stronger, while smaller independents will suffer under the weight of more regulations and the inability to raise capital,” he wrote.
Wall Street’s Favorite Oil Supplies
What does this mean for investors? You have the products – oil and natural gas – that have come under tremendous pressure. The price of crude oil is less than half of what it was not so long ago. Meanwhile, U.S. shale producers had a long chance to level last year. Looking ahead, the OPEC countries and Russia are motivated to push prices ever higher by managing supply.
When the pandemic finally ends, a euphoric reaction in the oil market could rise even from current levels. Sustained economic growth can also support significantly higher prices.
If we look at the S&P 500, there are 25 energy supplies. Here everyone is, according to the percentage ‘buy’ or an equivalent rating among Wall Street analysts. The table contains consensus pricing targets.
The table contains a lot of data – you will have to scroll to see it.
In addition to the rating information, there are 12 month price targets. Some of the targets are not much higher than current stock prices, not even for the companies with the most ‘buy’ or an equivalent rating. One year may not be long enough for a price target for a long-term investor, especially when looking at a commodity recovery that is partially dependent on the end of the pandemic.
Dividend yields are included in the table. Shares of Exxon Mobil Corp. XOM,
has a yield of 7.27%. The company surprised at least some investors by not lowering its dividend during the pandemic, even when oil prices were much lower. Exxon see competitors Chevron Corp. CVX,
also an attractive dividend yield – 5.60% – with a much lower ratio of long-term debt to equity (the column to the right of the graph).