The energy sector has been a disaster zone this year, as the coronavirus pandemic has decimated global oil demand. West Texas Intermediate, the benchmark U.S. crude, has plummeted nearly 70% to a recent $19.21 a barrel, while Brent, the most popular international benchmark, is down 60%, to $26.34. Most oil and gas producers, including the majors, will lose money in 2020 or barely eke out a profit, and most of those still paying dividends will have to borrow to cover the cost. As for energy stocks, they have made fools of their fans for nearly a decade, and now account for a measly 3% of the S&P 500 index.
Yet, the members of Barron’s 2020 Energy Roundtable see glimmers of hope for this beleaguered sector—and long-suffering investors—even though things could get worse before they get better. The painful steps that energy companies are taking to reduce supply and conserve cash are likely to pay off in higher oil and gas prices over the next two years—and stronger operations and balance sheets for the industry’s survivors. Emblematic of recent moves, Royal Dutch Shell (ticker: RDS.B) slashed its quarterly dividend on Thursday by 66%, to 16 cents a share from 47 cents, its first cut since World War II. And on Friday, Exxon Mobil (XOM) reported its first quarterly loss in decades.
Our 2020 Roundtable panelists include Phil Gresh, an energy analyst at J.P. Morgan; Bernadette Johnson, vice president of strategic analytics at Enverus, a data and analytics provider to the energy industry; Patrick Kaser, a portfolio manager specializing in large-cap value stocks at Brandywine Global; and Robert Thummel, a senior portfolio manager at Tortoise, which invests in “midstream” companies focused on energy transportation, storage, and marketing. The consensus among the group is that oil prices could double in the next year or so, to about $50 for Brent, as the global economy reopens and crude supply and demand ease back into balance.
Read more here in Barron’s: https://www.barrons.com/articles/oil-prices-could-double-in-the-next-year-or-two-our-experts-say-51588373735