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Energy Investing
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Bernstein energy commentary todayCommentary Crude/Flows – the commodity looks to gain for a fourth consecutive week as WTI has only added to last week’s $69.72 close despite yesterday’s choppy session which saw WTI close flat on the day. Although the equities were lower led by the Drillers and Services (OIH -2.2%, XLE -1.1%, XOP -1.2%, AMZ +0.6%, SPX -0.2%) it was an encouraging session for the commodity considering this week’s previous gain, and yesterday’s strength in the dollar (DXY +0.4% which was largest intraday gain in over a week). The Gulf continues to recover from recent storms albeit at much slower pace than past storms at a time when national Crude inventories are at their lowest level since mid-2019. Natural Gas is modestly higher after yesterday’s -2.3% loss which was the first loss of the week on a bearish storage number. Natural Gas has gained +22% over the past 3 weeks, and selloffs in the commodity and the linked equities feels like a ‘screaming’ buy into winter demand as supply dwindles. The only notable trend in yesterday’s trading flows was that of seeing buyers continue to prefer the Drillers and Services, and although volumes were on the light side yesterday (energy volumes were -4.5% versus the SPX at -0.4%), we did see some new positions in select Service names on the overall weakness. This afternoon’s rig count comes a week after the oil rig count added +7 rigs led by the Permian (gas rigs were lower last week despite the rally). In terms of Natural Gas I wanted to highlight a call that was out yesterday from our European Majors analyst suggesting EQNR (outperform, TP $30) as a way to play the rally in Natural Gas (which I have written about before). The company held a pre-organized webinar on global gas market dynamics and given the price levels in Europe it was well timed to see how Europe's largest natural gas producer views the market.
There aren't many ways to play the European gas theme these days given many gas weighted stocks were acquired in Europe back in 2004-2007, so the main exposure for investors remains EQNR. As I have written before EQNR is one of the few Majors where we have seen buyers for much of the year due to their renewables portfolio which makes the company quite ESG friendly for an Oil & Gas company. That said, we have certainly seen more buyers lately from the HF community looking to play the Natural Gas rally especially into winter, and preferring a more ‘stable’ Major over a high-beta E&P with leverage. This is quite obvious when looking at EQNR’s stock price which has just recently hit a new 52-week high, and continues to significantly outperform its peers although the stock will need to trade above $25 for the next ‘breakout’. I am also highlighting a call from our Asia-Pacific Oil & Gas analyst Neil Beveridge which recaps a recent call with BP’s China economist. The call reads quite BULLISH which I find interesting because although Neil continues to be an oil bull in the shorter-term he has sounded a bit BEARISH into 2022 as supply should catch up to demand. That said, as the call highlights although China is aggressively pursuing the energy transition (with an additional effort ahead of the Winter Olympics) the reliability on renewable sources like wind and solar is just not nearly as reliable like that of Oil and Gas as evident in so many power outages being witnessed this year. It all bodes well for Oil and Natural Gas, and should give energy bulls comfort for years to come as so much focus is on China. We even UPGRADED a couple Chinese Coal miners this morning as coal demand will not peak until 2027-2028 (both trade in China – Shenhua and China Coal). I thought Coal was dead! China Energy Outlook - we hosted a call with BP's China economist. The key message is that curbing energy use while driving economic growth is proving to be challenging. Widespread power outages this year highlight this. Rapid growth in solar, wind, batteries and hydrogen is assured and will enable China reach peak emissions by 2030, but fossil fuel demand will continue to grow until the end of the decade. With underinvestment in fossil fuel supply, higher prices for fossil fuels (oil, gas, and coal) look inevitable. Lastly, because I was out yesterday I am including a summary from Wednesday’s DOE data.
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Msg # | Subject | Author | Recs | Date Posted |
352596 | Re: Bernstein energy commentary today | us2u001 | 24 | 9/17/2021 9:24:35 AM |