Summary: Short-term caution on oil but prefers natural gas exposure over oil currently; medium-term oil view remains bullish.

The contrast between the short-term path for oil ("cause for pause") and our medium term outlook ("we remain bullish"™) is stark. I'll walk through our thesis on @BNNBloomberg today at 3:15pm and explain why we for now prefer natural gas exposure.


Summary: Contrarian long on E&P (15%+ FCF yield) and oilfield services (38% FCF yield); market too bearish on energy.

Sentiment stinks and energy stocks seem to be imprisoned by day-to-day changes to rate cut expectations. Yet, at spot WTI we can buy E&P's that we estimate are trading at 15%+ FCF yields and some service stocks at 38% FCF yields. While we have tamed our expectations we believe the market is far too bearish, offering opportunity in being contrarian.


Summary: Shares Goldman's call: Brent to grind higher to $100/bbl by December on non-OECD demand outweighing OECD decline.

Brent crude futures Yahoo Finance symbol

Goldman Sachs: "We expect rapid 2023 growth in non-OECD demand to sharply outweigh the moderate decline in OECD oil demand. As a result, we still expect Brent prices to grind higher to $100/bbl by December, and stay there in 2024."


Summary: Bullish oil price and oil equities: global inventories at multi-year lows, large cumulative deficit vs 2017-2019 baseline, stocks at 15%+ FCF yields.

Global oil inventories are now at their lowest levels since @Kpler data begins (2017), and we believe will end 2023/2024 at a ~378MM/750MM Bbl deficit relative to a 2017-2019 baseline average. This would strongly suggest a higher oil price, yet at the current price many stocks trade at 15%+ FCF yields. We remain bullish!


We remain bullish on natural gas stocks given incremental demand from LNG (+18Bcf/d by 2030) + meaningful increase in demand from electricity generation

Summary: Long natural gas stocks on LNG demand growth (+18 Bcf/d by 2030), power gen demand, and 10%+ FCF yields at $4/mcf strip.

"We remain bullish"™on natural gas stocks given incremental demand from LNG (+18Bcf/d by 2030) + meaningful increase in demand from electricity generation. Marginal cost of supply = 2026-2028 avg. strip = $4/mcf = 10%+ FCF yields. https://t.co/YZGZHWQGLs


Summary: Relays/adopts bullish Brent crude thesis: Iran sanctions removing 750kb/d–1mb/d could push Brent to $80-85/bbl within six months.

Brent crude futures proxy on Yahoo Finance

Washington policy extraordinaire @CroftHelima: "We have high conviction that the return to maximum pressure sanctions enforcement on Iran will be an early priority for Washington. Former and incoming Trump officials have indicated that 750 kb/d to 1 mb/d of Iranian exports can be removed from the market within a six-month period, an event which we think could push Brent prices into the $80-85/bbl range."


Summary: Long oil: bearish sentiment unjustified; Saudi discipline improving, US shale flatlining, demand will grow longer/stronger than consensus.

Brent crude futures as global oil commodity proxy

I believe the current overwhelmingly bearish sentiment for oil is unjustified, and is being fueled by chronically negative and biased stories that have little to no validity. Today in my opinion is a perfect example. The premise is that Saudi Arabia, under the very capable leadership of HRH ABS, is tired of losing market share and is about to "push" barrels onto a market that is the most bearish, as measured by net speculative length, in history. Why would they do that? US shale has been flat for 8 months, is forecasted to be flat for the next 9 months, and has entered its twilight years. I believe Saudi gets this. Compliance by the "cheaters" is massively improving in real-time, and lessons of March 2020 have been learned. Finally, Saudi has the ability to play the long game, given a belief which I concur with that oil demand will grow longer and stronger than consensus, thus a barrel not produced today at a low price is one that may be produced, when others cannot, at a much higher one. It is critical when a market is firmly stuck in a negative feedback loop to tune out the noise, today's FT article IMO being a classic example, and focus on the fundamentals.
 https://t.co/oNGJnkC6Dy


we see 'days of supply' hitting record lows, suggestive of $90+ Brent by YE'24

Summary: Bullish Brent crude to $90+ by YE24 on record supply deficit, OPEC+ cuts rolling to Q4, falling US shale growth, and stronger-than-consensus demand.

Despite having absorbed 224MM net Bbls from the Strategic Political Reserve™ over the past 1.5 years, global oil inventories now sit just 6MM Bbls away from record deficit levels.  With OPEC+ cuts likely being rolled to at least Q4'24 we see "days of supply" hitting record lows, suggestive of $90+ Brent by YE'24.  With US shale growth falling, "will and intent" winning, and demand growing longer and stronger than consensus believes...we remain bullish™.


a sector trading at a 17% FCF yield at $90WTI with their strongest balance sheets in history + on the cusp of returning 75%-100% of said FCF back to investors is not worthy of an 'overweight'....what sector is?!?

Summary: Strongly bullish energy sector: 17% FCF yield, strongest balance sheets ever, 75-100% FCF return to investors — author argues it deserves overweight.

This is a great example of why we do our own work and don't count on others to tell us what to think. If a sector trading at a 17% FCF yield at $90WTI with their strongest balance sheets in history + on the cusp of returning 75%-100% of said FCF back to investors is not worthy of an "overweight"....what sector is?!?


Summary: Bullish oil on inventory draws overwhelming recession narrative; energy equities attractively valued with upside optionality even at current prices.

Even with a long-awaited recession in OECD countries resulting in demand falling by 0.4MM Bbl/d (no sign of that yet!) and US willful blindness leading to Iranian production up 0.4MM Bbl/d, inventories should still end 2023 at multi-year lows. https://t.co/Kw3FbrwaB2

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We believe the magnitude of coming stock draws will overwhelm the now 1 year old "recession, recession, recession" narrative, ultimately leading to a price rally. https://t.co/e2jV6HHFEC

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What is compelling to us (and maybe others at some point!) is that given the YTD sell-off, even at the current oil price many energy stocks are attractively valued, offering investors free optionality to higher prices. For now, the free cashflow builds and debt continues to fall. https://t.co/28uaQxcQN8


Summary: Bullish on low-decline, long-dated Canadian oil producers as shale consolidation improves oil macro.

Why are we seeing US shale consolidation, why is it very positive for the oil macro, and why should it shine a light on low-decline, long-dated reserve life Canadian oil companies? Hear the answers in this 7 minute interview on @BNNBloomberg:
https://t.co/0jOM4JPRBU https://t.co/iKb7gXzb7s


Summary: Long mid-cap Canadian energy stocks as a contrarian play; rock-solid balance sheets, high FCF yields, growing buybacks/dividends despite record-low search interest.

Canadian midcap energy basket: Baytex, Whitecap, ATH, ARC

Interest in mid-cap Canadian energy stocks at a new low, as measured by Bloomberg search interest according to @JeremyMcCreaCFA. Definitely matches the mood right now, and is odd considering rock solid balance sheets, high free cash flow yields, and growing buybacks and dividends. I'm happy to be going against the herd on this one.


We remain bullish on natural gas stocks given the meaningful increase in forecasted demand (45Bcf/d over the next 10 years) and attractive free cashflow yields at the marginal cost of supply and strip ($4/mcf)

Summary: Remain bullish on natural gas equities on 45Bcf/d demand growth over 10 years and attractive FCF yields at $4/mcf.

"We remain bullish"™on natural gas stocks given the meaningful increase in forecasted demand (45Bcf/d over the next 10 years) and attractive free cashflow yields at the marginal cost of supply and strip ($4/mcf).

Disclaimer: https://t.co/WVA6oG8CCO

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Summary: Bullish oil on enduring geopolitical risk premium; long under-owned energy sector, especially Canadian long-life/high-FCF names over tech/software.

My typical playbook is to sell geopolitical spikes. This time feels different. Iran striking its regional neighbours was unexpected and massively escalatory, putting oil infrastructure at risk and making insurance on vessels through the Strait for now uneconomic. Without decisive regime change it’s reasonable to expect an enduring risk premium in the oil price, greater than what we've historically seen, and especially with the “twilight of shale” and rapid OPEC spare capacity exhaustion happening in real-time. For equities this is coinciding with a massive rotation out of tech/software into hard assets like energy (32% of the S&P500 now chasing <6%), with the energy sector still out-of-favour and under-owned. What to own? Long-life, high margin, low growth, high free cashflow assets in politically safe jurisdictions 🇨🇦🇨🇦🇨🇦.


Long-life, high margin, low growth, high free cashflow assets in politically safe jurisdictions 🇨🇦🇨🇦🇨🇦


Summary: Bullish Canadian small/mid-cap energy: extreme valuation dislocation (1x EV/CF at $70 WTI) sets up multi-bagger potential when sentiment turns.

Canadian small/mid cap energy: ATH, BTE, WCP

Just how broken is the small/mid cap energy sector at the moment? A Canadian small cap oil company just sold 20% of their production for almost 50% of their market cap. Pro-forma it now trades at 1x EV/cashflow at $70WTI. When sentiment improves, this is the hunting ground for multi-baggers.


Summary: Bullish Canadian energy sector on extremely compelling valuations vs other sub-indices despite miserable sentiment.

Sentiment towards the energy sector remains miserable, while valuations relative to other sub-indices are extremely compelling. The only upside from this? Canadian energy companies YTD have been able to buy back $4.8BN of stock at attractive prices. https://t.co/8Er3TszGsL


Summary: Bullish Canadian energy stocks as energy-literate PM frontrunner should remove political risk discount.

It’s refreshing to hear such an energy-literate politician, especially when that person is likely to become Canada’s next Prime Minister in the coming months which should lead to the elimination of the Canadian political risk discount in our energy stocks. https://t.co/Q5YG1BvcMA


Summary: Bullish oil: OPEC+ cuts working, summer demand + Saudi volume return in 2H24 will shift narrative to falling spare capacity.

YTD global oil inventories have risen by 4MM Bbls. Last year they rose by 95MM Bbls. That is a 1MM Bbl/d YOY swing. OPEC+/Saudi cuts are working! With Summer demand approaching we believe Saudi will begin to bring back curtailed volumes in 2H'24, and the market narrative will again gradually switch to falling spare capacity.


Summary: Rotating away from Canadian oil equities (XEG broadly fair at $60 WTI) into natural gas where compelling value remains.

The performance of Canadian oil stocks YTD has been spectacular, with oil down 19% YTD yet the XEG up 16%, outperforming its US peer by ~20%. Given this and now broadly fair valuations at $60WTI, we much prefer exposure to natural gas and still find compelling value there. https://t.co/c9ZKD9R8qs


still bullish on Canadian energy stocks. Twilight of US shale = scarcity premium for co.'s with multi-decade inventories when the storm passes

Summary: Bearish oil near-term but bullish Canadian energy equities on scarcity premium as US shale declines and multi-decade inventory holders benefit.

2 hour drive into work given the Spring ice storm but managed to make it in time. Key message: you can be bearish oil (for now) but still bullish on Canadian energy stocks. Twilight of US shale = scarcity premium for co.’s with multi-decade inventories when the storm passes. https://t.co/5GYP9ARG3t


Summary: Long energy sector: buyback-driven rerating is still ahead as companies pivot 75-100% FCF to return of capital.

We have for several years believed that the compounding effect of meaningful share buybacks would lead to an inevitable rerating of energy company valuations, given just how valuable the last theoretical remaining share would be. We have championed this philosophy aggressively, and it is gratifying to see that we are in good company. Given that most companies have just recently hit their final debt targets in the past Q or so, pivoting to 75%-100% of FCF going to return of capital, I believe we have yet to see the real impact of buybacks on valuations.


Summary: Bullish Canadian heavy oil names on TMX pipeline coming online, expanding market access.

Canadian heavy oil producers: CNQ, CVE, ATH, BTE

An 8 minute overview with the @financialpost as to why TMX (operational tomorrow!) is such a positive development for Canadian heavy oil names. We remain bullish™.
https://t.co/hBBBwsJslW https://t.co/bxTFuVLabr


Summary: Canadian energy stocks trade at unwarranted discount to global peers due to policy ignorance; discount expected to close post-election — bullish.

On the same day that OPEC forecasted oil demand growth to 2050, our esteemed Minister in charge of Canada's energy sector, home to the 3rd largest oil reserves in the world and a sector responsible for ~15% of Canada's GDP, declared that "oil and gas will peak this decade, in fact oil is probably peaking this year." Such a profound display of energy ignorance and resulting poor policies are in my opinion a reason why Canadian energy stocks trade at a discount to global peers, and one that should disappear after the next election.


You can buy the largest natural gas producer in North America, with 20+ years of inventory + low debt (0.7x), at a 13% FCF yield at $4 gas, with 75% of post-div FCF = buybacks

Summary: Bullish on the largest North American nat-gas producer (EQT implied): cheap at 13% FCF yield, low debt, massive buybacks.

EQT Corporation, largest US nat gas producer

Want proof that the energy sector is inefficient = opportunity rich? You can buy the largest natural gas producer in North America, with 20+ years of inventory + low debt (0.7x), at a 13% FCF yield at $4 gas (3 year forward gas strip = $3.93), with 75% of post-div FCF = buybacks.


Summary: Bullish WTI and Canadian energy midcaps at ~$75 oil on strong fundamentals, slowing US shale growth, low inventories, and OPEC discipline.

Canadian midcap energy: BTE, WCP, ATH, ARC

The 2024 WTI strip is now $75.72. At $75WTI we estimate several Canadian midcaps to be trading near 15% free cashflow yields. To us, that is attractive. Sentiment remains awful and explaining the degree of pessimism is getting increasingly hard: demand is fine, US shale growth is radically slowing, global inventories are low, and OPEC spare capacity is largely held by 1 sophisticated player with a "will and intent."


Summary: Bullish energy stocks and oil in $80-90 sweet spot; glut narrative dead, companies minting money at current prices.

The sweet spot for energy stocks to grind higher? $80-$90. Much higher, especially on a geopolitical spike and no one wants to buy worried of a sudden rug pull. Oil companies are minting it at current levels and the “glut narrative” is dead. We remain bullish! ™


Summary: Bullish oil stocks: near-record-low inventories, demand beats, shale disappointment, and tight OPEC spare capacity.

Global oil inventories are a mere 5 barrels away from their lowest levels in recorded history. Demand is outpacing bearish expectations. US shale continues to disappoint. OPEC spare capacity is tightly held by those with "will and intent." This is why we are bullish on oil stocks https://t.co/QSqb6j6QFv


Summary: Energy stocks look cheap after brutalizing days: 3.8x EV/CF, 15% FCF yield, 11.7% shareholder return yield at $80 WTI — implicitly bullish.

We estimate that after a few brutalizing days, that the average energy stock at $80WTI now trades at 3.8x EV/'24 CF, a 15% free cashflow yield, has debt:cashflow of 0.5X, and has a buyback/dividend yield of 11.7%. https://t.co/xi3CgQKiht


Summary: Structural multi-year bull case on natural gas: demand up 45Bcf/d (~36%) over the next decade, now THE fuel of the future.

TC Energy: natural gas demand to grow by 45Bcf/d (~36%) over the next decade. While subject to the vagaries of Mother Nature in the short-term, we believe natural gas is in a structural multi-year bull market as it has gone from a bridge fuel to THE fuel of the future. https://t.co/slAvywkZon