The oil market is currently facing one of the most turbulent periods since the infamous March 2020 crash, as investors are facing fears of a recession. Oil prices continued to slide as the central bank decided to raise interest rates by a record-high 75 basis points. And 8.8% lower than last week’s highs. Meanwhile, Brent crude for the August settlement traded 4% lower at $ 110.10 / barrel in Wednesday’s session, which was 9.4% lower than last week’s high. While crude prices have taken a big hit, oil and gas stocks are still bad, with fuel stocks experiencing nearly twice as much sales pressure as compared to WTI crude.
“From year to year, energy has been the only field in the green sector … but now the worry is that the Bears are coming after the winner, so they can reduce energy. The energy sector has reduced its rising 50 DMA and is now down. Crude oil sits atop its rising 50 DMA and has a strong technical model, “ MKM chief marketing strategist JC O’Hara wrote in a note to customers.
“Usually, we like to buy pullbacks in uptrends. At this stage of the bear market, our concern is that leadership stocks are often the last domino to fall, so profitability is high. Then we reap some of the gains of size,“He added.
Related: Russian refinery on fire after Kamikaze drone strike
According to O’Hara’s chart analysis, these energy stocks have the highest risk of downside:
Antero Midstream (NYSE: AM), Arcrack (NYSE: AROC), Baker Hughes (NASDAQ: BKR), DMC Global (NASDAQ: BOOM), ChampionX (NASDAQ: CHX), Core Labs (NYSE: CLB), ConocoPhillips (NYSE: COP), Colon Petroleum (NYSE: CPE), Chevron (NYSE: CVX), Drill-quip (NYSE: DRQ), Devon Energy (NYSE: DVN), EOG Resources (NYSE: EOG), Equitrons Midstream (NYSE: ETRN), Diamondback Energy (NASDAQ: FANG), Green Plains (NASDAQ: GPRE), Halliburton (NYSE: HAL), Helix Energy (NYSE: HLX), World Fuel Services (NYSE: INT), Kinder Morgan (NYSE: KMI), November (NYSE: NOV), Maritime International (NYSE: OII), Oil States International (NYSE: OIS), That’s right (NYSE: OKE), Propetro (NYSE: Pump), Pioneering natural resources (NYSE: PXD), RPC (NYSE: RES), REX American Resources (NYSE: REX), Schlumberger (NYSE: SLB), US Silica (NYSE: SLCA), The Bristow Group (NYSE: VTOL), and Williams Companies (NYSE: WMB).
But the bear camp, including the likes O’Hara believes the oil price rally is over, with the Bulls standing on their ground and temporarily mulling the latest sale.
In Recent interview, Michael O’Brien, head of core Canadian equities at TD Asset Management, told TD Wealth’s Kim Parlee that oil supply / demand fundamentals are underpinned by private producers and NOCs for years with little investment.
To take a toll on the investment costs of companies in exploration and production (E&P), you can blame the prospects of the ESG – as well as the short-term oil price environment – over the past couple of years. In fact, actual and announced capex cuts are below the minimum required to cover depreciation, let alone any anticipated growth. Oil and gas costs fell off the cliff from its peak in 2014, with global costs hitting a nadir in 2020 through exploration and production (E&P) firms. The 13-year minimum is just $ 450 billion.
Despite high oil prices, energy companies are gradually increasing the cost of capital and for the most part shareholders prefer to return excess money in the form of dividends and stock buybacks. Others like it BP Plc. (NYSE: BP) and Shell Plc. (NYSE: SHEL) is already committed to long-term production cuts and is struggling to reverse their trajectory.
Norway-based energy consultancy Ristad Energy has warned that Big Oil could see its proven reserves be depleted in less than 15 years, with the volumes generated have not been replaced with completely new innovations.
According to Ristad, oil and gas reserves proved by so-called Big Oil companies ExxonMobil (NYSE: XOM), BP Plc., Shell, Chevron (NYSE: CVX), Total energies (NYSE: TTE), and Any Spa (NYSE: E) are all declining, as the volumes produced are not replaced with completely new innovations.
Source: Oil and Gas Journal
Allegations of massive impairment have seen Big Oil’s proven reserves drop by $ 13 billion, which is good for ~ 15% of its stock levels on the ground. Ristad now says the remaining reserves will be depleted in less than 15 years, unless Big Oil makes more commercial innovations quickly.
The main culprit: rapidly declining exploration investments.
Global oil and gas companies In 2020, they cut their capex by an astounding 34% In response to shrinking demand, and investors are wary of the continued poor returns from the sector.
ExxonMobil, with its proven reserves shrinking by 7 billion buoy by 2020 or 30% from 2019, is the worst after major cuts in Canadian oil sands and US shale gas properties.
Shell, meanwhile, saw its proven reserves plunge 20% to 9 billion bw last year; Chevron lost 2 billion Bo of reserves as evidenced by impairment charges, while BP lost 1 Bo. Only Total and Eni have avoided reductions in proven reserves over the past decade.
The result? The US shale industry has only managed to increase crude output by 2022 by 800,000 b / d, but OPEC has consistently struggled to meet its targets. In fact, the situation is much worse for the 13 countries that make up the OPEC + produced cartel 2.695 million barrels per day, above its crude oil target In May.
Exxon CEO Darren Woods predicts that crude markets will remain tight for five years, giving firms time to “capture” the investments needed to ensure supply to meet demand.
“Supply will remain tight and will continue to support high oil prices. ICE Brent’s norm is still around the $ 120 / bbl mark,” PVM analyst Stephen Brenak told Reuters after the recent crude sale.
In other words, the oil price rally may be far away and the latest amendment may give investors new entry points.
Credit Suisse Energy analyst Manav Gupta weighed in on stocks that are highly exposed to oil and gas prices. You can find them Here.
Meanwhile, you can find some cheap oil and gas stocks Here.
By Alex Kimani for Oilprice.com
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