by winston » Thu Sep 16, 2021 9:02 am
ENERGY SECTOR – RISE, OIL’S FORGOTTEN COUSIN
Natural gas prices hitting record highs, turning around from earlier oversupply – but how sustainable?
Also keep in mind that companies focus on longer-dated futures
Eyeing Brent crude at around USD80/bbl over 3-mth timeframe, before settling to USD76/bbl in 12 months
What a difference a year makes. Just over a year ago, the global gas market was facing extreme oversupply.
Prices had fallen to ~USD2/mmbtu or lower across key global benchmarks, near historic lows that fully eliminated regional price spreads for the first time in decades.
Since then, surging demand, constrained supply and low storage, have pushed key gas and LNG benchmarks to multi-year highs. Along with supportive crude prices, the energy sector has performed strongly year-to-date.
However, we remind investors that companies focus on longer-dated futures in their budgeting and capital expenditure plans, and it is likely that record high natural gas prices may find some gravity again in 2022 when new supply comes to the market.
For the integrateds, much of their gas exposure is either sold under oil-linked contracts or hedged in the near term, although they do still have some spot and trading exposure.
Pure play natural gas focused companies under our coverage with upside include E&P companies such as Cabot Oil and Gas [BUY; FV: USD23], as well as LNG company Cheniere Energy [HOLD; FV: USD97].
For Brent crude, our bank’s forecast is for USD80/bbl over a 3-month timeframe, before settling to USD76/bbl in 12 months.
As mentioned in our earlier sector report on 9 Jul 2021, the easy gains have been made and investors are advised to be more selective.
Source: OCBC
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