Market Musings 110224: Oil as a contrarian theme

Robust oil demand could outweigh growth in oil supply


  • Look outside of Tech for unloved contrarian ideas

  • Oil & Gas did very well in 2022, but little in 2023

  • Several reasons to expect better fundamental momentum from oil and gas prices

  • Focus on key subsectors with momentum: US refinersUS energy infrastructure

Podcast this week:

The Magnificent Seven meet the Good, the Bad, ad the Ugly

Edmund Shing, Global Chief Investment Officer at BNP Paribas Wealth Management explains the evolution of the Magnificent Seven, and guides to what the future may hold for them. Who are the Good, the Bad and the Ugly? $197 billion and the link with Meta Is Apple tumbling from the heights? Do Tesla’s dashboard warning signs reflect its current woes, Why the Magnificent Seven are splintering?

Looking for ignored sectors outside of Tech: Oi & Gas

Since the beginning of 2022, the Oil & Gas sector has been one of the best performers in the US, and also in Europe. In addition to the 50% for the US oil majors since January 2022 and the +22% for European oil & gas majors, we can add healthy dividend yields of 3.5% per year in the US and 4.8% in Europe. Admittedly, this performance came mostly in 2022, and oil & gas companies have done relatively little over 2023 and into 2024.

The key reason for this lack of performance over the last 12 months is clear: the Brent crude oil price has not made any progress in 2023-24. Today Brent crude oil sits at $82 per barrel, around the same price as at the beginning of 2023.

Natural gas prices have fared even worse over 2023-24: US natural gas prices have declined to their lowest level since 2020 at under $2 per thermal unit, while European gas prices (represented by the Dutch TTF benchmark) have also declined to the lowest levels since mid-2021 at EUR27/MWh.

Potential catalysts for Oil & Gas stocks

After the lacklustre performance of oil & gas stocks over the last 12+ months, why am I once again interested in this out-of-favour sector?

I see a number of potential catalysts that could be positive drivers for oil & gas earnings in the coming months.

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