Crude oil prices fell above $ 120 / bbl to their three-month high after Saudi Arabia raised the official selling price of its Arab light crude oil to Asia. Energy traders remain largely committed to supply constraints and continue to support high oil prices given the short-term supply prospects.
Citing tighter market balances, several analysts have raised their oil price targets, with Citi saying it expects Russian production and exports to fall by 1 million to 1.5 million bbl / day by the end of 2022.
Not surprisingly, several oil stocks are trading at all-time highs, namely ConocoPhillips (NYSE: COP), EOG Resources (NYSE: EOG), Marathon Petroleum Corp. (NYSE: MPC), Valero Energy Corp. (NYSE: VLO), Civitas Resources (NYSE: CIVI), Whiting Petroleum Corp. (NYSE: WLL), Oasis Petroleum (NASDAQ: OAS) and Matador Resources (NYSE: MTDR).
But some analysts now warn that rising oil prices could threaten to collapse.
“Energy traders are confident that this oil market will remain tight, given the short-term supply prospects of both OPEC + and the United States, but it is steadily rising. Exhaustion can be identified, “Ed Moya, a senior market analyst at Oanda, told Bloomberg.
Indeed, it must be pointed out that the energy sector may be overheating.
So far this year, until June 7, only one sector of the S&P 500 can claim significant profits – energy – and that’s a lot: the sector’s favorite benchmark, the Energy Select Sector SPDR Fund (NYSEARCA: XLE) has grown by 56.3%. Utilities are the only other green sector, but the sector’s 2% profit since the beginning of the year is nothing to write about. In contrast, the S&P 500 passed through the annus horribilis, losing 14.8% since the beginning of the year.
Another indicator also suggests that oil (and stock) prices may be close to the territory of overbought.
The long-term average gold-oil ratio is that one ounce of gold will buy 16.53 barrels of oil. Every time an ounce of gold bought more than 16.53 barrels of oil, it meant that either oil was cheap or gold was expensive. Conversely, oil is considered expensive or cheap for gold when an ounce of gold would buy less than 16.53 barrels.
Related: Oil prices fall on small stocks of oil and gasoline
Martin Rats and Amy Sergeant Amy Sergeant Morgan Stanley said that while the oil-gold ratio has historically been a poor indicator of future oil prices, it may still be of interest to investors looking for directions on oil prices. Knowing this can help investors determine whether they should buy more oil and sell their gold, or vice versa. The current gold-oil ratio of 15.61 suggests that the current price of WTI of $ 118.30 / barrel is slightly higher and should fall to ~ $ 117.71 / barrel.
Another indicator shows that oil and gas reserves are rising.
Prof. Robert Schiller of Yale University invents Schiller’s P / E to measure market value. Shiller’s P / E is a more reasonable indicator of market valuation than the P / E ratio, as it eliminates fluctuations in the ratio caused by changes in profit margins over business cycles. While valuations are a poor tool for short-term timing, they are a great predictor of long-term stock prices. Shiller’s P / E ratio reliably predicts stock performance over 10 years.
Currently, the energy sector has a Shiller P / E of 37.20, with only real estate (47.10), consumer cycling (43.90) and technology (39.10) more expensive.
By comparison, the S&P 500 has a Shiller P / E of 32.10, but its regular P / E ratio of 20.8 is slightly higher than 20.7 of the energy.
However, there are still some great deals in the oil and gas sector. Here are five.
Market capitalization: $ 14.9 billion
P / E ratio (Fwd): 5.52
Return since the beginning of the year: 68.2%
Ovintiv Inc. (NYSE: OVV) is an energy company based in Denver, Colorado that, along with its subsidiaries, researches, develops, manufactures and markets natural gas, oil and liquefied natural gas.
The company’s main assets include Permian in West Texas and Anadarko in west-central Oklahoma; and Montney in northeastern British Columbia and northwestern Alberta. His other upstream assets include Bakken in North Dakota and Uinta in central Utah; and the Horn River in northeastern British Columbia and Wheatland in southern Alberta.
Last month, Mizuho improved the OVV to $ 78 from $ 54 (a good 32% increase over the current price), citing improved tailwinds.
Market capitalization: $ 6.8B
P / E ratio (Fwd): 5.73
Return since the beginning of the year: 64.6%
Another mining company in Denver, Colorado, Civitas Resources, Inc. (NYSE: CIVI) focuses on the acquisition, development and production of oil and natural gas in the Rocky Mountains region, primarily in the Wattenberg field in the Denver-Julesburg basin in Colorado.
As of December 31, 2021, it had proven reserves of 397.7 MMBoe, including 143.6 MMbbl of crude oil, 106.0 MMbbl of liquefied natural gas and 888.5 Bcf of natural gas.
Benjamin Halliburton, chief investment officer at Building Benjamins, recommended the acquisition of Civitas, saying the company’s strong balance sheet and increased free cash flow could boost shares to $ 110 next year (up 31.7%) and its annual dividend could to reach $ 6 up from $ 1.63 at the moment.
Market capitalization: $ 3.9B
P / E ratio (Fwd): 6.26
Return since the beginning of the year: 53.4%
Enerplus Corporation (NYSE: ERF) (TSX: ERF), together with its subsidiaries, is involved in the exploration and development of crude oil and natural gas in the United States and Canada. The company owns oil and natural gas primarily in North Dakota, Colorado and Pennsylvania; and Alberta, British Columbia and Saskatchewan.
As of December 31, 2021, the company had proven plus probable gross reserves of approximately 8.2 million barrels (MMbbl) of light and medium crude oil; 20.7 MMbbl heavy crude oil; 299.3 MMbbl thick oil; 56.2 MMbbl liquefied natural gas; 19.7 billion cubic feet (Bcf) of conventional natural gas; and 1367.9 Bcf shale gas.
Related: Rising pressure on oil prices will only increase
Jason Bouvier, an analyst at Scotiabank, told the Financial Post that she had chosen Enerplus as one of Canada’s energy companies with the lowest capital costs (including hedging profits).
Market capitalization: $ 65.9B
P / E ratio (Fwd): 6.76
Since the beginning of the year return: 124.1%
Headquartered in Houston, Texas, Occidental Petroleum Corporation (NYSE: OXY) and its subsidiaries are involved in the acquisition, exploration and development of oil and gas properties in the United States, the Middle East, Africa and Latin America. The company also has a chemical segment that manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organic substances, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates and calcium chloride; vinyls containing vinyl chloride monomer, polyvinyl chloride and ethylene.
Last month, Ecopetrol (NYSE: EC) announced an agreement to develop four deep-water blocks off the coast of Colombia with Occidental Petroleum. Ecopetrol has revealed that it will take a 40% stake in the units, while Occidental’s subsidiary Anadarko Colombia will have a 60% stake and serve as the operator.
- Canadian natural resources
Market capitalization: $ 78.1 billion
P / E ratio (Fwd): 7.19
Return since the beginning of the year: 55.3%
Canadian Natural Resources Limited (NYSE: CNQ) acquires, researches, develops, manufactures, markets and sells crude oil, natural gas and liquefied natural gas (NGL).
As of December 31, 2020, the company has total proven reserves of crude oil, bitumen and NGL of 10,528 million barrels (MMbbl); the total proven plus probable reserves of crude oil, bitumen and NGL are 13 271 MMbbl; SCO’s proven reserves are 6,998 MMbbl; the total proven plus probable reserves of SCO are 7 535 MMbbl; proven natural gas reserves are 12,168 billion cubic feet (Bcf) and total proven plus probable natural gas reserves are 20,249 Bcf.
Last month, CNQ announced solid first-quarter earnings and cash flow, combined with pre-announced dividend and redemption plans. As with most partners, a good footprint from Q1 is likely to be followed by even better results for Q2.
By Alex Kimani for Oilprice.com
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