1. Upside potential for beaten-down energy stocks
- Oil and gas markets are far from healthy, but with crude prices stable and natural gas prices on the rise, drilling and completion activity could grind higher, according to Morgan Stanley.
- Capex will likely remain flat in 2021, but will increase in 2022 and 2023, the bank believes.
- Key risks to the oilfield services sector include pandemic-related shutdowns, election risks and OPEC behavior. But upside risk includes the possibility of industry consolidation, which would improve supply-side dynamics and oilfield services pricing.
- Morgan Stanley revised up its EBITDA estimates by 4 percent across its coverage area, with top picks in the oilfield services segment including Liberty Oilfield Services Inc (NYSE: LBRT), Nextier Oilfield Solutions (NYSE: NEX) and Cactus Inc (NYSE: WHD). LBRT is up 46 percent since announcing its purchase of Schlumberger’s (NYSE: SLB) OneStim business in September.
2. Demand concerns reemerge as covid cases soar
- Global oil demand rose rapidly between April and July, increasing by 14.7 mb/d from the low point. However, as of July, demand was still down 8.2 mb/d from a year-ago levels.
- Preliminary data suggests that demand increased in August and slightly in September.
- However, mobility data shows that the end of summer holidays and the surging cases of Covid-19 in many countries has more recently led to a decline in demand.