After an initial jolt following OPEC’s announcement of a 2 million barrel per day production cut, oil prices fell sharply on a host of negative catalysts including a strong dollar, a hawkish Fed, soaring inflation rates and fears of a global economic slowdown. respond to the request. Additionally, it has been reported that the Biden administration may soon release an additional 15 million barrels of crude oil from the Strategic Petroleum Reserve to counter the OPEC movement and control prices.
Oil prices, however, look on track to snap two consecutive weekly losses thanks in large part to robust crude demand and a weakening dollar. After a relentless ascent that saw it hit a 20-year high against a basket of six major currencies, the dollar has fallen to a month-long low on hopes that the Fed will finally give in to sharp rises in rate. Oil rose on Thursday, extending a rally of nearly 3% in the previous session, as U.S. crude exports hit record highs.
“Recession fears seem to have eased lately, but betting on continued healthy economic growth will prove foolhardy,Tamas Varga, an analyst at oil broker PVM, told Reuters.
While the near-term outlook for oil and gas remains cloudy, the longer-term outlook remains favorable, with global energy demand expected to continue to grow while oil and gas will remain the world’s main sources of energy. . A report from Energy Information Administration (EIA) estimates that global energy demand will increase by 47% by 2050 as more people reach middle class status. Natural gas, in particular, is expected to see growing demand as it continues to be the preeminent deck fuel in the energy transition.
Here are 3 lesser-known oil and gas stocks that should benefit from the current market environment and are also very popular with hedge funds.
#1. NextTier Oilfield Solutions Inc.
Cumulative returns since the beginning of the year: 177.8%
Market cap: $2.74 billion
Based in Houston, TX NextTier Oilfield Solutions Inc. (NYSE: NEX) is an oil exploration infrastructure company that operates in the oil and gas fracturing segment in the United States. A total of 30 hedge funds have NEX shares in their portfolios.
NextTier Reported good results in Q3 2022 Tuesday, with revenue of $896 million good for 127.9% year-over-year growth and net income of $104.7 million ($0.42 per diluted share), a huge improvement from compared to the net loss of $44.0 million recorded for the comparable quarter last year. Better yet, the company issued a positive outlook for the U.S. shale industry, noting in its earnings call that while the “fracking bottleneck” and trend toward capital discipline restrict shale’s ability to “fully delivering until at least next year” is actually a favorable setup for shale from 2023”.
“The multi-year outlook has arguably never been better for U.S. onshore well completion fundamentals,” NEX noted.
As recession fears continue to rock markets, NEX is confident that US demand for shale would still be strong.
“There are clear signs of recession in the broader economy. And that has some worried that near-term oil demand is succumbing to macro pressures. An industry downturn is not our base case. And given the extreme strain that currently exists in fracking, even in a recession, we expect relatively favorable U.S. fracking supply dynamics in 2023. Additionally, for the year Going forward, we believe our strong downside protection would position us to continue to create value for our shareholders,” NEX said in its earnings call.
#2. Golar LNG Limited
Cumulative returns since the beginning of the year: 108.3%
Market cap: $2.90 billion
Golar LNG Limited (NASDAQ: GLNG), is a liquefied natural gas company that operates offshore infrastructure for the liquefaction and regasification of LNG. The company is headquartered in Hamilton, Bermuda.
Demand for LNG has been extraordinarily strong as Europe works hard to wean itself off Russian energy products after the latter invaded Ukraine.
According to a Bloomberg New Energy Finance report“…the global LNG market is expected to be tight over the period 2022-26, as Europe’s quest to reduce its dependence on Russian gas increases demand for LNG. The ramp-up of new supply projects, particularly in the United States, is expected to increase global supply to 460 million tonnes, up 19% compared to 2021. Growth in LNG demand is expected to be limited by supply between 2021 and 26, with growth of 18%. estimated, although Europe is expected to see its imports climb over the period.”
Golar LNG Limited is also benefiting from rising oil prices, with its liquefaction vessel under contract which sees the company earn $3.1 million each for a $1 increase in the price of Brent crude.
#3. Comstock Resources, Inc.
Cumulative returns since the beginning of the year: 106.8%
Market cap: $4.11 billion
Texas-based Frisco Comstock Resources, Inc. (NYSE: CRK) is an independent energy company engaged in the development and production of oil and natural gas primarily in northern Louisiana and eastern Texas in the United States.
Comstock has benefited from strong natural gas demand and tight supply since last year. The company took advantage of high gas prices to improve its balance sheet and aggressively repaid debt, providing it with downside protection and the ability to withstand lower prices.
Although gasoline prices have since declined, they are still multiples above their 5-year average and companies like Comstock should have little difficulty continuing to grow their top line and bottom line.
By Alex Kimani for Oilprice.com
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