Interview, Conference Presentation
Oil Equities in 2021
- Oil prices and equity performance are forecast to strengthen in 2021, with prices projected to advance further into the second half of 2022 and potentially into 2022.
- Global oil demand is anticipated to nearly fully recover to 2019 levels by the end of 2021, representing an above-consensus recovery driven by vaccine distribution and travel confidence in the second half of the year.
- Three of four factors negatively impacting stock performance—short-term demand, Biden administration policies, and long-term demand—are expected to recede over the next nine months, with capital discipline and long-term demand clarity expected in the first half of the year.
- Non-OPEC supply is not expected to recover in 2021 due to under-investment in long-lead time projects, which will become a significant driver of supply growth constraints and higher prices outside the OPEC group.
- Investors are expected to push for consolidated operations and disciplined capital spending, requiring producers to maintain lower reinvestment rates even if prices rise, with discipline anticipated by the third quarter.
- Saudi Arabia's surprise production cut is viewed as a catalyst that has already firm-ed up near-term prices, while OPEC is expected to have room to increase production as the year progresses to support higher equity valuations.
- Federal policy overhangs regarding land access and permitting are expected to resolve with greater clarity in the first half of the year, whereas clean energy growth is projected to rely more on lower costs and state policies than federal stimulus.
- Long-term demand is expected to decelerate throughout the 2020s and decline in the 2030s, leading to sustained pressure on investor valuation and increasing the importance of sustainability for long-term sector winners.
- To succeed in the evolving market, companies are expected to adopt an LEAD framework (Leverage, Earnings, Assets, Decarbonization) and demonstrate sustainability leadership, while lower discount rates are anticipated to be applied to the sector as the year progresses.
- Greater movement in confidence regarding short-term demand is expected in the first half of the year, with broader demand confidence rising in the second half when consumers feel comfortable booking travel.