Tag Archive for: oil price

Oil Prices Are Rising

The average energy stock is on track to gain more than 50% this year, a stunning result for a sector that has lagged far behind the market for most of the past decade. Prospects are looking good for 2022, too, particularly in oil. Oil prices are indeed rising and will continue to rise.

International crude prices have risen 43% in 2021, and U.S. crude is up 46%, climbing out of the hole created during the worst of Covid-19.

But the latest oil bonanza is different from many of the booms and busts that have characterized a century of wildcatting. Companies are bringing production back slowly, both in the States and abroad, as investors demand better returns. Credit research firm Fitch Solutions doesn’t expect oil and gas capital expenditure to return to pre-pandemic levels until 2025.

Sending Back to Investors

So what will energy companies do with all of that money they’re making from higher oil prices if they don’t spend it on drilling wells? They’re going to send much more of it back to investors.

Morgan Stanley analyst Devin McDermott expects oil companies to offer a 6% buyback and dividend yield next year, with the big integrated names offering an 8% yield. He expects the stocks to outperform the broad market, given that they’re trading at a 65% discount to the S&P 500 index, twice their historical discount.

Several other analysts are bullish, too. RBC Capital Markets’ Michael Tran sees Brent crude averaging $79.50 a barrel next year and $86.50 in 2023.

Two big questions are still looming. The first is whether Covid will wane in 2022, leading to a full travel rebound. The other is whether oil companies and the Organization of Petroleum Exporting Countries will really stick to their plans to increase capital expenditure slowly.

Historically, boom cycles end when producers get greedy, plowing money into projects just as prices start to peak. In those cases, the next step can be a wave of bankruptcies. Most analysts aren’t betting on that cycle to repeat.

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Source: BARRON’S

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Oil Prices Are Rising

A rise in oil price with a two-week high on Tuesday after the United States lifted travel restrictions and other signs of a global post-pandemic recovery boosted the demand outlook, while supply remained tight.

Prices rallied after the projection of U.S. Energy Information Administration (EIA) in its Short Term Energy Outlook (STEO) on Tuesday. They projected retail gasoline prices would decline over the next several months.

U.S. President Joe Biden’s administration said it would use price forecasts in the STEO report to determine whether to release oil from the nation’s Strategic Petroleum Reserve (SPR).

Analysts said if the STEO had shown a huge rise in projected gasoline prices, the Biden administration was likely to release lots of oil from the SPR quickly, which would have depressed prices.

Brent futures rose $1.35, or 1.6%, to settle at $84.78 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $2.22, or 2.7%, to settle at $84.15.

They were the highest closes for both benchmarks since Oct. 26. The rise in oil price is inevitable in the coming weeks and months.

The price of Brent has gained over 60% this year and hit a three-year high of $86.70 on Oct. 25, supported by recovering demand and supply restraint by the Organization of the Petroleum Exporting Countries and allies, known as OPEC+.

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Source: Reuters

If you have further questions about the topic, feel free to contact us here at Ranger Land and Minerals.