Equity Research Projects ‘Less Terrible’ Energy Sector Performance in 2016
Six Energy Predictions for 2016 include range-bound crude oil prices, modest improvements in stock performance, continued cuts in capital spending
S&P Capital IQ and SNL, a business unit of McGraw Hill Financial (NYSE:MHFI) and a leading provider of research, analytics and data, released its Six Energy Predictions for 2016, which forecasts the key trends that will shape energy sector performance this year.
Six Energy Predictions for 2016, Six Energy Predictions for 2016, which was produced by the S&P Capital IQ Equity Research team, suggests that the year ahead will be a challenging one for the energy sector, but a number of modest improvements will start to take shape. Among some of the key predictions are year-over-year improvements in stock performance, range-bound crude oil pricing and continued cuts in capital spending among energy sector companies.
Following are some of the report’s key observations:
- ‘Less Terrible’ Stock Performance: In 2015, the energy sector returned -24.4%, far worse than the S&P 500, which returned -1.0%. If crude oil prices are able to hover in the vicinity of $46 per barrel, S&P Capital IQ Equity Research thinks energy performance will manage to track more closely to the S&P 500’s performance than it has in recent years.
- Range-Bound Crude Oil Pricing: S&P Capital IQ thinks a range of $30-$50 per barrel for WTI crude oil is reasonable, with potential downside risks coming from a slowdown in China and upside potential reflected in geopolitical risk that may not be adequately factored into current commodity prices.
- Continued Cuts to CAPEX: S&P Capital IQ consensus estimates point to a more than 30% cut to capital spending in 2015, and a further 17% decline in 2016. Based on this, the S&P Capital IQ Equity Research team believes that 2016 will be the last year of capital spending cuts before a recovery in 2017.
- Rocky Performance for Energy Midstream: Stubbornly weak crude oil prices could put pressure on the midstream pipeline, transportation, storage and wholesale companies such as Enbridge Energy Partners, NuStar Energy and Sunoco Logistics Partners.
- Lifting of U.S. Oil Export Embargo Met with Collective Market Shrug: The lifting of the U.S. oil export ban my ultimately be much ado about nothing, according to S&P Capital IQ. There may be some cases where U.S. light-sweet crude oil is attractive in overseas markets due to crude quality, but the new source of global supply is not expected to be a panacea for the industry.
- Producers Focus on Efficiency: Among producers, efficiency will matter more than growth in 2016, with companies such as ExxonMobil and Occidental Petroleum likely to generate positive free cash flow.
“The energy sector has been in the spotlight as the worst performing sector of the S&P 500 for some time now and while it won’t recover fully in 2016, we are starting to see signs of modest improvement,” said Stewart Glickman, Energy Equity Analyst at S&P Capital IQ. “As the sector continues to climb out of the rubble of the last several years of declines, expect to see improvement come in fits and starts.”
About S&P Capital IQ and SNL
S&P Capital IQ and SNL Financial, a business unit of McGraw Hill Financial (NYSE:MHFI), is a leading provider of financial and industry data, research, news and analytics to investment professionals, government agencies, corporations, and universities worldwide. The newly combined firm integrates news, comprehensive market and sector-specific data and analytics into a variety of tools to help track performance, generate alpha, identify investment ideas, understand competitive and industry dynamics, perform valuation and assess credit risk. For more information, visit www.spcapitaliq.com or www.snl.com.
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