Category: Financial Markets
After a 2.3 percent increase the previous session, US West Texas Intermediate (WTI) futures were down 0.1 percent at $71.86.
After OPEC and allied nations signed a tentative deal to raise oil output, oil futures fell roughly 7% on Monday, owing to fears about the spread of the COVId-19 delta variant and concerns about oversupply.
The Energy Information Administration (EIA) reported earlier this week that gasoline stockpiles fell by 100,000 barrels last week, while distillate stockpiles fell by 1.3 million barrels.
The EIA report also showed a drop in crude stockpiles at the storage hub in Cushing, Oklahoma, to the lowest level in about seven months.
(Source: RTT News)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Even with the rally year to date, we have energy as fairly valued, with the median stock trading at a price/fair value ratio of 1. Opportunities exist across all segments, particularly services and integrated, which trade at a 29% and 10% discount to intrinsic value, respectively. Exploration and production stocks have surged in the last three months, and on average the group is 8% overvalued (though a handful of 4-star stocks are still underappreciated, in our view).
The ongoing mass rollouts of COVID-19 vaccinations in developed markets will be the main catalyst for year-on-year demand growth of 5.1 million barrels per day in 2021. Our updated demand estimates for 2021 and 2022 are 96.2 mmb/d and 100.4 mmb/d, respectively. While optimistic about demand improvements, producers remain hesitant on the supply end.
During its June 1 meeting, OPEC+ confirmed it will go ahead with modest volume increases of 350 and 450 mb/d in June and July, respectively (which means the group will still be withholding at least 2 mmb/d). And U.S. shale drillers—which have historically acted as swing producers, like OPEC—have steadfastly refused to increase capital budgets to take advantage of higher oil prices, preferring to prioritize free cash flows and distributions to shareholders.
As a result, we now anticipate global demand will outpace supply this year by 1.0 mmb/d. These dynamics have pushed oil prices to what we consider frothy levels, with the West Texas Intermediate benchmark currently 33% higher than our $55/bbl midcycle forecast. Without an abrupt change in strategy from OPEC or the U.S. shale industry, the oil markets will remain tight this year, and short prices could climb even higher.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
