The oil and gas industry is experiencing a period of difficulty as prices for the commodities hit low levels following a tremendous high period in 2022. Despite these setbacks, experts believe oil and gas stocks present opportunities.
Read on to learn more about what happened in the oil and gas market in the first half of 2023 and what could be next.
Experts see opportunity in oil and gas stocks
There are plenty of options for investors when it comes to oil and gas companies — firms in this space fulfill a variety of purposes, including drilling, extraction, oilfield services, oil refining and transportation.
“You’re sort of sitting there in an equity getting paid to wait — the balance sheet looks pretty good, and the stock is essentially where it was 24 months ago,” he said. “I mean, it feels to me like it’s pretty asymmetric to the upside here.”
Funds have faced struggles as well this year, with only the United States Gasoline Fund (ARCA:UGA) showing a positive return; it was up 5.87 percent year-to-date as of July 11, as per VettaFi.
How did oil and gas prices perform in H1?
Russia’s war in Ukraine played a significant role in last year’s oil price increase, with levels peaking at US$120 per barrel in June 2022, according to Golinowski. However, since then oil has come back down, ranging between US$67 and US$73.
“It’s literally been a contrast of extremes in really the course of the last 12 (months),” he said.
The price downturn has now created a “high level of bearishness” across the oil and gas market.
This price compression has set new expectations for lower production numbers. A column published by Reuters indicates the industry has gone from an average of 780 rigs drilling for oil and gas at the end of 2022 to just 687 in June of this year.
In terms of gas, the fuel reached a 2023 low point of under US$2.50 per million British thermal units in June.
Oil and gas market still facing COVID-19 aftershocks
“The service industry literally was partially disbanded because everybody had to stop bleeding cash — so every job cut and every production cut, everything was just completely shut in,” Golinowski added. This downturn eventually led to a tremendous rush when circumstances began returning to normal, which sparked inflationary pressures.
“Fundamentally, the oil and gas services industry is tight,” Golinowski said. ‘The equipment is consolidated; there’s very few players left in it. And those companies, I think, are going to hang on to a lot of pricing power.’
Investor takeaway
It’s clear that the oil and gas sector continues to feel the impact of the COVID-19 pandemic, even as it’s being strongly affected by new issues like Russia’s ongoing war in Ukraine.
Price volatility is the name of the game when it comes to oil and gas, and so far in 2023 prices have let down investors.
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
