Oil prices rush to two year peak! With market analysis and stock recommendation

Goldman Sachs: Brent crude oil will flourish until next year

With the recovery of global crude oil demand, the Organization of Petroleum Exporting Countries and partner countries (OPEC+) announced that they would gradually resume normal production, encouraging Brent crude oil to break through the $70 per barrel mark and reach a two-year high. Goldman Sachs believes that the rise in oil prices will continue until next year, and the price of Brent crude oil looks at US$80 per barrel.

The oversupply of crude oil last year turned into a short supply. The market estimates that crude oil inventories in July may be lower than the historical average. This is a major change, highlighting the turning point of supply and demand in the oil market. Moreover, several factors indicate that future oil prices are supportive. First of all, although the United States is expected to relax Iran’s sanctions and Iran will be able to export more crude oil, OPEC members estimate that even if the United States and Iran reach an agreement, Iran will gradually resume production and output will not be in place all at once.

Pressure to reduce emissions push up oil prices

Before Exxon Mobil (Exxon Mobil), Chevron (Chevron) and Shell (Royal Dutch Shell) were recently publicly reviewed for high emissions issues, Canadian oil sands producers in Calgary had already faced the same predicament.

Financial Post reported that the National Federation of Trade Unions (CSN) pension fund "Bâtirente" has submitted a shareholder proposal at the annual meeting of the Calgary oil sands producer Imperial Oil Ltd. on May 4, requesting the adoption of rivals Cenovus Energy Inc., Canadian Natural Resources Ltd.'s similar net zero emission target.

Investors are becoming more and more active on the issue of emission reduction. This trend has been developing in Europe for many years, and it will be fermented at the annual shareholder meeting of American companies Exxon and Chevron at the end of May. Jackie Forrest, executive director of the ARC Energy Research Institute, estimates that about half of the crude oil produced in Canada comes from oil producers who have promised to achieve a net zero emission target, and the proportion of oil sands is 70%. She believes that investors are one of the motivations for the industry to take action.

In addition to the possible limitation of oil supply, market demand is also expected to increase with the vaccinations of Europeans and Americans. MarketWatch reported on the 4th that Matthew Parry, head of Energy Aspects' long-term analysis department, said in an interview that investors are gradually realizing that market demand is recovering.

Stock recommendation

Although the best time to invest in oil stocks has passed, there are still profit opportunities.

The performance of Vanguard Energy Index Fund ETF Shares (NYSE:VDE) this year has far surpassed the performance of the S&P market, with a cumulative increase of 49%. Constituents include oil service giants such as Exxon Mobil, Phillips 66 and Chevron. According to the trend (picture below), there is still some room for upside.

For another example, ExxonMobil’s dividend yield is as high as 5.7%, which is four times the average return of the S&P 500. As energy demand continues to expand, the company may pay dividends in cash instead of from the market. loan. Exxon Mobil generated approximately $6.6 billion in free cash flow in the first quarter. This is the first time since the fall of 2018 that the company has enough cash to pay dividends, which is higher than the sum of the previous nine quarters.

Another United States Oil ETF (US: USO) that I like very much. Its trend is linked to U.S. oil. Although oil prices have reached a two-year high, the ETF price still has a lot of upside (pictured below), and there is still a lot of distance from the high before the epidemic.