The energy sector’s outlook looks robust, thanks to growing demand for oil and gas and constrained crude supplies amid steps taken by Saudi Arabia, Russia, and their oil-producing allies. Given the industry tailwinds, quality energy stocks Equinor ASA (EQNR – Get Rating), Inpex Corporation (IPXHY – Get Rating), and YPF Sociedad Anónima (YPF – Get Rating) could be solid additions to your portfolio now.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the energy industry’s prospects.
According to the latest IEA Oil Market Report (OMR), global oil demand is climbing to record highs, driven by solid summer air travel, increased oil use in power generation, and soaring Chinese petrochemical activity. World oil demand is expected to grow by 2.2 mb/d year-over-year to 102.2 mb/d in 2023, with China accounting for more than 70% of the increase.
On the other side, supply is shrinking, as heavyweight oil producer Saudi Arabia announced an extension of a 1 mb/d voluntary crude production cut into September, in the third month of such declines.
“In effect, the Kingdom’s production for the month of September 2023 will be approximately 9 million barrels per day,” the state-owned Saudi Press Agency said, citing a source from the Saudi Ministry of Energy.
The 1 mb/d output cut by Saudi adds to 1.66 mb/d of other voluntary production cuts that some members of the Organization of the Petroleum Exporting Countries have put in place until the end of next year.
Further, the Kingdom is widely anticipated to extend its voluntary 1 mb/d cut for a fourth straight month into October. Meanwhile, Russian Deputy Prime Minister Alexander Novak said that Moscow agreed with OPEC+ partners for continued export cuts next month.
Thus, the oil market’s fundamental picture looks relatively bullish, as demand remains resilient despite prevailing concerns of slowing economies while supply is tightening, thanks to output cuts from OPEC+ and Saudi Arabia. As a result, oil prices are surging, which leads to higher gasoline and overall energy prices.
Several economists and analysts have raised their 2023 oil price forecasts. The commodity experts predicted Brent Crude to average $82.45 a barrel in 2023, compared to the July consensus of $81.95. The WTI crude is expected to average $77.83 per barrel for the year, above the prior forecast of $77.20.
Moreover, as per Standard Chartered, effective producer output restraint, led by Saudi Arabia, will create favorable conditions for a price rally that will push Brent prices above the peak of $89.09/bbl achieved earlier this year, with their average fourth-quarter forecast at $93/bbl and an intra-quarter high exceeding $100/bbl.
In the same line, Goldman Sachs upgraded the 2023 oil demand estimate by about 550,000 bpd. It expects the solid demand to lead to a wider-than-expected deficit of as much as 1.8 million bpd in the second half of 2023 and 600,000 bpd next year. The bank maintained its $86 a-barrel Brent forecast for December 2023 and expects prices to rise to $93 per barrel in the second quarter of 2024.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Foreign Oil & Gas stock picks, beginning with the third choice…
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