Energy market is now under-supplied

ENERGY SECTOR OUT-PERFORMANCE LIES AHEAD

Having ended 2017 as one of the worst performing global sectors, sustained out-performance lies ahead for energy stocks in 2018. The underlying crude oil market is now under-supplied while inventory levels have fallen sharply. These supply-demand and inventory dynamics have historically translated into improving corporate profitability over the coming 12-24 months.

 

  • The current supply-demand and inventory dynamics look like 1996-1997 and 2010-2014 periods where crude oil rose 53-99%
  • The 60% rise in crude from the summer, 2017 lows should see corporate returns rise by 400-600 bps
  • The normalization of corporate returns in the energy sector is the key to reversing the all-time low valuations of the energy sector versus global equities

Source: UBP, Bloomberg Finance, IAEA, U.S. Dept. of Energy


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