The energy sector has been helped by a sustained recovery in oil prices in 2018. Here’s a look at what’s been going on in the sector ahead of upcoming Q2 earnings reports.
Sustained, albeit slowing, global economic growth, OPEC supply cuts, the U.S.’s renewed sanctions on Iran, and declining output in Venezuela and Libya are just some of the factors that have been helping turnaround the energy sector.
At the same time, high dividend yields offered by some individual stocks in the sector have potentially attracted new investors in an interest rate environment where 10-year Treasury yields still hover below 3%.
For Q2, the energy sector is expected to report 23.8% year-over-year revenue growth and 142.5% earnings growth, according to FactSet. That high projected earnings growth rate is largely a result of low earnings in the same quarter last year, as well as a sustained recovery in oil prices.
WTI Crude started the year in the low $60 range and has been trading around $74 in July. Brent Crude, the global benchmark, was trading at $77.72 this morning, up from $66.57 at the start of the year.
The price of natural gas, on the other hand, which is a sizable portion of the oil supermajors’ businesses, remains well below its winter peak of $3.63 and has been trading in the $2.60 to $3.00 range since February.
While geopolitical tensions typically don’t bode well for the broader market, the energy sector is one area where companies could benefit, as oil prices get pushed higher from shifting supply and demand. However, if tensions increase, supply and demand can become more erratic and it could have a disruptive force on the market.
Beyond geopolitics, supply disruptions can always come from unexpected places and have varied impacts on the market depending on the size and length of the disruption. One of Syncrude’s oil sands facilities in Canada lost power earlier this month, halting up to 360,000 barrels per day (bpd) of production. That facility is expected to come back online towards the end of July, according to a company spokeswoman from Suncor Energy (SU), which owns a majority stake in Syncrude.
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