If the direction of oil and gas prices is anything to go by, you may want to top off your vehicles this week. And perhaps revisit some of the leading ASX energy shares.
Oil and gas (LNG) prices both fell off a cliff in 2020. That came as domestic and international travel ground to a halt amid global lockdowns aimed at stemming the spread of COVID-19.
On 3 January last year, Brent crude oil was trading for US$68.60 per barrel. By 21 April the price had cratered to US$19.33. Though the price falls were not quite as dramatic, LNG prices sank as well.
By the end of April energy prices began to battle back. Slowly. As recently as 30 October, Brent was still selling for US$37.36 per barrel.
Then came the announcements of multiple effective coronavirus vaccines. While these are still in the early stages of rollout – Australia won’t begin mass vaccinations until March – energy demand is picking up as the world emerges from its self-imposed cocoon.
Together with lower supplies, thanks in large part to unilateral cuts from OPEC powerhouse Saudi Arabia, Brent crude is trading at US$55.63 (AU$72.25) today. That’s up 49% just since the end of October.
And spot prices for LNG in Asia are at record highs, currently over US$20 per million British thermal units (MBTU).
Leading ASX energy shares rocketing higher
With the price of the commodities they pump from the earth soaring, leading ASX energy companies have seen their share prices rocketing higher. Not that they’ve recovered their pre-pandemic levels yet, mind you.
But since 1 November the Oil Search Ltd (ASX: OSH) share price is up 65%.
The Beach Energy Ltd (ASX: BPT) share price is also up 65%.
As for the Santos Ltd (ASX: STO) share price? It’s up 54% since the first trading day of November.
Woodside Petroleum Limited (ASX: WPL) trails this pack with a share price gain since 1 November of ‘only’ 45%.
What’s next for global energy markets?
That’s a peek in the rearview mirror. The pressing question for investors now is what to expect from energy prices, and ASX energy shares, in 2021.
As reported by the Australian Financial Review, Wall Street research firm Bernstein “expects a significant recovery in oil demand in the second half this year”.
That forecast is based on the virus being reined in and unleashing pent-up demand for travel. And Bernstein doesn’t believe the push towards green energy negates this bullish view.
According to Bernstein’s chief oil and gas analyst in Asia, Neil Beveridge:
We still expect another cycle in oil given the under-investment in the industry and demand recovery. You can believe in net zero and still be bullish on oil stocks and oil price in our view.
Eric Streitberg, executive chairman of Buru Energy Limited (ASX: BRU), agrees that the shift to renewable energy sources won’t negate the strong demand for oil and gas anytime soon:
Although there is an inexorable and necessary shift to renewables, the world still needs oil and gas in large quantities and will do so for decades to come. On the supply side, investment in the industry has collapsed and this can only mean production is unlikely to keep up with demand, which will inevitably lead to higher prices.
Buru’s share price, by the way, has also rocketed alongside the soaring energy prices, with Buru shares up 45% since 1 November.
Then there’s Carlos Slim, the world’s 21st-richest person.
According to Bloomberg, Slim and his family business own shares worth US$230 million in oil refiner PBF Energy Inc (NYSE: PBF) and pipeline operator PBF Logistics LP (NYSE: PBFX). And they’ve kept adding to their holdings when share prices were tumbling.
Arturo Elias, Slim’s spokesman, said:
The world still needs refining for planes, ships, cars and these companies were punished because consumption fell due to the pandemic.
ASX oil and gas company CEOs cautiously optimistic
Making hay while the sun shines is good policy if, well, you’re making hay. But the CEOs of some of Australia’s top energy shares prefer to err on the conservative side (quoted by the AFR).
Oil Search CEO Keiran Wulff says:
LNG and oil prices have had a strong start to the year and there is cautious optimism pricing will continue to be supported through the year… Regardless of the improved pricing outlook, Oil Search will continue to run the business conservatively as we focus on costs, production and break-even to enhance resilience and position the company for greater upside in the event of longer-term stronger pricing than our current planning forecast.
Beach Energy’s CEO Matt Kay acknowledges the difficulty in making forecasts in the current environment. He says, “All of us are hopeful that 2021 will be a year of greater stability, but if we learnt anything in the last 12 months, it’s to expect the unexpected.”
And Santos’ CEO Kevin Gallagher points out that energy companies, and investors, should expect some volatility in energy prices and act accordingly.
No-one should be surprised when gas prices go up or down – that’s the nature of our business. Certainly, we have seen a significant recovery in prices over the past months but energy companies get into trouble when they run their business based on prices at the top of the cycle.