After a brief pause, the oil price rally is back on track. Crude Oil closed with its seventh straight weekly gain on tight fuel supplies supporting bullish sentiment. After a brief dip on Friday following news that US inflation had hit a new 40-year high, WTI crude rebounded to end the week with a 1.5% gain to trade at 122, $40 a barrel, while Brent crude settled up 1.9% to $124.03.
With the summer driving season in full swing, high fuel prices are a clear harbinger of a painful summer. For the first time in history, American motorists are paying more than $5 for a gallon of gasoline, with the current price of $5,014 for regular gasoline and $5,771 for diesel both all-time highs.
Understandably, part of Wall Street fears that high fuel prices, coupled with runaway inflation, will trigger demand destruction and ultimately drive down oil prices.
“The concern is [high inflation] could be a forward-looking indicator of consumption patterns, and even if gasoline demand is strong right now, it’s a sign in the future that if gasoline prices don’t stabilize, then consumers will reduce“Price Futures analyst Phil Flynn told CNBC.
Luckily for the bulls, the opposite camp, including oil bulls like Goldman Sachs, felt that energy prices are still not high enough to dampen demand.
GS’s sentiment is supported by current data: the latest EIA data showed a further drop in US gasoline inventories. Meanwhile, in another indication of extreme market tension, Bloomberg reported that 1940s North Sea crude is trading at a premium of more than $4/barrel to Brent, the largest gap since at least 2008. North Sea 40s is one of the qualities underlying the dated global Brent benchmark. Related: China’s Oil Demand Growth Threatened by Latest Covid Outbreak
Although oil and gas stocks have generally rebounded strongly alongside the commodities boom, the gains have not been uniform, with some sectors performing better than their peers. Swiss credit Energy analyst Manav Gupta weighed in on stocks most exposed to oil and gas prices. Here are his top 5 picks in different oil and gas industries.
- Integrated Oil and Gas: Cenovus
Canadian Oil Sands Oil Company Cenovus Energy (NYSE: CVE) develops, produces and markets crude oil, natural gas liquids and natural gas in Canada, the United States and the Asia-Pacific region. The Company operates through the oil sands, conventional, and refining and marketing segments.
Last month, Cenovus released a statement announcing the “suspension of its crude oil price risk management activities,” essentially saying it was discontinuing its hedging program. Management argued that the company does not “hedge” production, but rather employs a strategy to lock in profits using the company’s dynamic storage assets; in any case, the risk management program is no longer necessary, given the strength of the company’s balance sheet and liquidity position.
In other words, CVE can now benefit from higher cash prices without the baggage of fuel covers.
More recently, shares of Cenovus Energy jumped after announcing that it had agreed to restart the West White Rose project offshore Newfoundland and Labrador.
The West White Rose Project is a $3.2 billion expansion project for the White Rose offshore oil field. The project, which is about 65% complete, has been stalled for more than two years following the pandemic-related market crash.
First oil from the platform is expected in the first half of 2026, with peak production expected to reach ~80,000 bpd, 45,000 bpd net to Cenovus, by the end of 2029. The remaining capital needed to achieve first oil is expected to be ~$2 billion to $2.3 billion net to Cenovus.
- E&P: Ovintiv
Ovintiv Inc.(NYSE: OVV) is a Denver, Colorado-based energy company which, together with its subsidiaries, is engaged in the exploration, development, production and marketing of natural gas, oil and liquids. natural gas.
The Company’s principal assets include Permian in west Texas and Anadarko in west-central Oklahoma, and Montney in northeastern British Columbia and northwestern Alberta. Its other upstream assets include Bakken in North Dakota, Uinta in central Utah, Horn River in northeast British Columbia and Wheatland in southern Alberta.
Last month, Mizuho upgraded the OVV to $78 from $54 (good for 32% upside from the current price), citing improved tailwinds.
- Large caps: ConocoPhillips
One of the largest oil and gas companies in the Western Hemisphere, Conoco Phillips Inc. (NYSE: COP) is a Houston, Texas-based company that explores, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids globally entire. It is mainly engaged in conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands and other production operations.
COP’s portfolio includes unconventional games in North America; conventional assets in North America, Europe, Asia and Australia; various LNG developments; oil sands assets in Canada; and an inventory of conventional and unconventional exploration prospects. ConocoPhillips was founded in 1917 and is headquartered in Houston, Texas.
Scotiabank recently upgraded COP shares to buy after the stock trailed the E&P index by 7% year-to-date.
Last week, Qatar selected ConocoPhillips alongside Exxon Mobil (NYSE: XOM), TotalEnergies (NYSE: TTE), and Shell (NYSE: SHEL) as partners in the expansion of the world’s largest liquefied natural gas project. state owned Qatar Energy had decided to make a final investment decision on its own to develop the $30 billion project. The four new partners would have a total of 20% to 25% of the North Field expansion project drawdown.
- Petroleum Refining: Phillips 66
Phillips 66 (NYSE:PSX) is a manufacturing and energy logistics company based in Houston, Texas. It operates through four segments: Midstream, Chemicals, Refining and Marketing and Specialties (M&S). Phillips 66 was formed in 2012 after ConocoPhillips separated its midstream and downstream business segments.
The Company’s Refining segment is the most dominant, where the Company refines crude oil and other raw materials into petroleum products, such as gasoline, distillates, aviation and renewable fuels at 12 refineries in the United States. United and Europe. Phillips 66 had a net crude refining throughput capacity of nearly two million barrels per day in 2021. Despite a drop in demand for transportation fuel that year, the US-based refiner slightly increased its throughput capacity. Related: Saudi Arabia cuts oil volumes to China for July
Refiners like Phillips 66 are currently enjoying strong refining margins amid tight supply and robust demand. While there’s a good chance that high fuel prices will ultimately lead to demand destruction, Goldman Sachs says demand for distillate fuel is likely to remain strong and margins will remain high due to these factors:
- Diesel and jet fuel inventories are at historic lows, and seasonally adjusted inventory drawdowns are large and accelerating.
- Kerosene consumption is set to accelerate in the summer with a return to international travel.
- High natural gas prices will lead to a gas-to-oil transition in Europe and Asia.
- The Russian-Ukrainian war will reduce the supply of distillates, as Russia exports ~900 kb/d of diesel fuel and ~900 kb/d of residual raw materials, which are largely processed into diesel by European and Chinese refiners.
- Halfway: Targa Resources
Another Texas oil and gas company, Targa Resources Corp.(NYSE: TRGP), together with its subsidiary, Targa Resources Partners LP, owns, operates, acquires and develops a portfolio of midstream energy assets in North America.
The company is engaged in the gathering, compression, treatment, treatment, transportation and sale of natural gas; storage, fractionation, processing, transportation and sale of natural gas liquids (NGLs) and NGL products, including services to liquefied petroleum gas exporters; and the gathering, purchase, storage, terminaling and sale of crude oil.
Targa operates approximately 28,400 miles of pipelines, including 42 owned-and-operated processing plants; and owns or operates a total of 34 storage wells with a gross storage capacity of approximately 76 million barrels. As of December 31, 2021, the company leased and managed approximately 648 railcars; 119 transport tractors; and two company-owned pressurized NGL barges. Targa Resources Corp. was incorporated in 2005 and is headquartered in Houston, Texas.
By Alex Kimani for Oilprice.com
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