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5 Stocks To Watch As The Oil Market Rebounds | OilPrice.com – OilPrice.com

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5 Stocks To Watch As The Oil Market Rebounds | OilPrice.com

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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    It is exactly four months since the historic oil price crash that sent crude prices into negative territory for the first time ever. Since then, WTI and Brent prices have staged a nice recovery to trade at five-month highs. 

    Optimism is slowly returning to the oil markets thanks to the deep OPEC+ cuts and the latest report that shows producers have mostly been sticking to their pledged cuts. Meanwhile, the prospects of finding a Covid-19 vaccine appear bright, with no less than 170 teams in the race and even vaccines in the final stage of trials.

    Wall Street is growing increasingly bold with its oil price prognostications, with Bank of America recently saying crude prices are on track to hit $60 during the first half of 2021 as the oversupply flips into a deficit.

    Oil prices have failed to retrace their pre-crisis levels fully, instead remaining range-bound at $40-$45. However, if you belong to the bull camp and believe a big oil rally is in the cards, here are five oil and gas stocks to play the rebound.

    #1 Safest Dividends: Phillip 66 Texas-based Phillips 66 (NYSE:PSX) is a downstream/midstream company with stakes in 13 refineries. Most refiners have been badly hit by Covid-19 due to weak demand for oil products, and PSX has not been spared, either. The stock is down 45% in the year-to-date, with peers Valero Energy Corp. (NYSE:VLO) and Marathon Oil Corp. (NYSE:MRO) having lost 41.6% and 56.2%, respectively.

    Nevertheless, PSX has its bright side. The stock currently sports a forward dividend yield of 5.87%, with the company paying a 90 cents quarterly dividend ($3.60 per share annually). With Wall Street predicting an EPS of  $1.10 in the current year and $5.10 in 2021, PSX’s dividend appears well covered.

    Further, the company recently announced plans to reconfigure its San Francisco Refinery to produce renewable fuels from soybean oil, used cooking oil, fats, and greases rather than from crude oil. The converted refinery has a planned completion date of 2024 and is set to become one of the world’s largest renewable diesel production facilities, which could prove to be a wise move on the part of PSX’s management given the ESG boom.

    Related: Saudi Oil Minister: Oil Demand Could See A 97% Recovery By The End Of 2020

    One caveat: Although PSX has consistently paid its dividend since its 2012 spinoff from ConocoPhillips (NYSE:COP), it has failed to increase the dividend over the past six consecutive quarters.

    #2 Oil Majors: Chevron

    Oil majors tend to be among the safest investments in the oil and gas sector due to their deep pockets, and Chevron Corp. (NYSE:CVX) is proving to be the creme de la creme of the crop. CVX is down 27.3% YTD, compared to -39.2% return by its close peer ExxonMobil (NYSE:XOM) and -37.6% by the Energy Select Sector Fund (XLE).

    Chevron has generally maintained more modest capital investment plans over the year, which is proving to be a strong selling point in this era when investors are demanding capital discipline rather than aggressive growth. CVX was among the first companies to cut capex when oil prices nosedived and it has made further spending cuts as conditions continued to deteriorate, thus taking its planned 2020 capex from $20 billion to $14 billion. 

    Wood Mackenzie, a global energy, renewables, and mining research and consultancy group, has reported that Chevron Corp and Royal Dutch Shell (NYSE:RDS.A) are the most resilient to low oil prices, thanks to their robust deepwater projects and LNG as well as less exposure to high-cost assets.

    #3 Natural Gas: The Williams Companies

    Natural Gas Henry Hub Prices(USD/MMBtu)

    Source: Business Insider Natural gas prices have been spiking lately, up nearly 41% over the past 30 days to trade at $2.42/MMBtu, a level they last touched in November thanks to warmer-than-expected weather and increasing cooling demand across the United States.

    Nevertheless, given how volatile the natural gas market has become, it is prudent to hedge your bets here.

    The Williams Companies (NYSE:WMB) is an operator of pipelines and other midstream assets with a focus on the Marcellus Basin natural gas producers. WMB is a leader in the midstream space with minimal exposure to commodity prices since it generates nearly all of its cash flows from fee-based sources.  

    Related: Low Prices Put The Brakes On Peru’s Oil Ambitions

    Williams has continued to exhibit relatively strong performance during these troubled times, with Q2 2020 EBITDA flat at $1.24B compared to a year ago after the company managed to cut costs by 24%. Although the dividend coverage ratio fell to 1.64x vs. 1.88x a year ago, it is still above the red zone and appears sustainable given its 100% fee-based cash flow structure with the majority of its customers in good condition.

    WMB sports a dividend yield (fwd) of 7.34% and a low short interest of 1.52%.

    #4 MLPs: NuStar Energy

    In a past article, we discussed how Master Limited Partnerships (MLPs) have been falling out of favor thanks to Trump’s corporate tax bonanza as well as a change in the MLP tax costs for interstate pipelines. Nevertheless, MLPs remain some of the highest dividend payers in the energy space and will therefore continue to appeal to yield-chasing investors.

    One such MLP is San Antonio-based NuStar Energy (NYSE:NS). Nustar owns and operates 10,000 miles of pipeline and 75 terminal and storage facilities for the storage and distribution of crude oil, specialty liquids, and refined products.

    Despite recently cutting its distributions by a third, NS still sports a healthy fwd yield of 10.74% and is only moderately leveraged, which coupled with the huge 67% capex cut, lowers the risk of additional big cuts going forward.

    #5 Fastest-Growing: Range Resources Corp.

    Range Resources Corp. (NYSE:RRC) is a Delaware-based petroleum and natural gas exploration and production company and one of the largest exploration companies operating in the Marcellus Formation. 

    It is rare to find an oil and gas stock that is up in triple-digits during this crisis, but RRC has managed to do just that. RRC is up 75.6% YTD and 112.4% over the past 12 months, which is remarkable for an energy company with a $2B market cap.

    That is the case because many investors love a good turnaround story, and RRC appears to fit that bill. First was the good news in late March after the company announced the reaffirmation of its $3B credit base, thus assuaging fears of looming bankruptcy. Second, during its Q2 2020 earnings call, RRC reported that its natural gas unit cost had declined to $1.79 per mcfe, or $0.39 per mcfe lower compared to 18 months ago thanks to efficient utilization of infrastructure and streamlining operations. 

    With gas prices approaching $2.50/MMBtu, RRC’s balance sheet now looks much stronger.

    By Alex Kimani for Oilprice.com

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      Oil Prices Stuck In Limbo As Uncertainty Mounts – OilPrice.com

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      Oil Prices Stuck In Limbo As Uncertainty Mounts | OilPrice.com

      Tsvetana Paraskova

      Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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        Oil prices are unlikely to move much higher from the current levels in the low $40s, at least not for the rest of the year, a growing number of analysts and industry professionals say.  Oil has been stuck in a narrow trading range in the low $40s more or less since July after the market began to worry that even with large supply cuts from OPEC+ and curtailments in the U.S., demand will not recover fast and strong enough to draw down the record-high inventories that had built in the second quarter.   

        This year has been a year of uncertainties on all markets, including the oil market, but it looks as if uncertainties have grown since we entered the second half of 2020, instead of abating as analysts had predicted earlier this year. 

        Uncertainties about a second wave of COVID-19 and renewed restrictions on social gatherings in several major European economies are weighing on oil market sentiment. China’s ability to continue propping up oil demand with record-high crude oil purchases is also called into question. The U.S. election is another major uncertainty and whatever the result, the markets, including the energy market, will be impacted.

        In recent weeks, uncertainties over when (if ever) oil demand will return to the pre-crisis levels have increased with demand recovery basically stalled and China appearing to slow down its oil imports.

        A lot of the major players on the oil market, including some of the largest independent oil traders such as Trafigura and Mercuria, have been bearish on oil near term, expecting global stocks to build in the fourth quarter – due to weak demand – before starting to decline. The biggest independent oil trader in the world, Vitol Group, however, was quite bullish two weeks ago. The world’s stockpiles of oil have diminished by around 300 million barrels since peaking at 1.2 billion barrels early this summer, and are expected to decline by another 250 million-300 million barrels between September and December, Vitol’s chief executive Russell Hardy told Bloomberg in mid-September.  

        Related: China’s Crude Oil Imports Are Slowing Down But another executive at Vitol, executive committee member Chris Bake, said on Gulf Intelligence’s weekly energy podcast on Sunday that demand is looking more uncertain amid a “huge amount of uncertainty” about COVID-19, economies, monetary stimulus, and oil demand. 

        “The conventional wisdom going into the fourth quarter was that things were going to improve,” Bake said, noting that “it doesn’t feel like we have a huge catalyst” for the rest of the year. 

        According to Bake, there is a “big push-pull between the demand and supply side, and the demand side right now looks very uncertain; the supply side probably will need to adjust to that.”

        The deteriorating demand outlook comes just as OPEC+ is preparing to further ease – as of January – the current production cuts, leading to speculation that the group is set for a turbulent dialogue in the fourth quarter about its supply-fixing decisions. 

        There is uncertainty about OPEC+ “holding the line without making another move,” Vitol’s Bake said on the Gulf Intelligence podcast. 

        Related: Oil Bulls Return As OPEC+ Reassures Markets

        Many economies in Europe also face increased uncertainty with surging COVID-19 cases. The City of London’s biggest employers, banks, had just started slowly returning staff to offices, encouraging employees to drive to work with cash incentives or paying their taxi fares, when UK Prime Minister Boris Johnson said last week that everyone who can, should work from home. Banks reversed plans for employees returning to the office, stricter local restrictions are imposed in some areas in the UK, and London faces a local lockdown with a possible ban on household mixing if it wants to avoid a full lockdown. France also announced stricter restrictions last week, while the Spanish capital Madrid is also tightening restrictions but stopping short of a city-wide lockdown. 

        No government in Europe is inclined to repeat a nationwide lockdown, looking to avoid another devastating economic hit, but local restrictions are already happening. 

        The uncertainty isn’t helping either consumer confidence or the economy and is stalling oil demand recovery. At the same time, supply is set to grow from Libya after a tentative truce and the re-opening of some of the ports.    

        If the huge amount of uncertainty in demand persists in the fourth quarter, the OPEC+ group may be forced to review its supply-fixing policy, potentially fracturing the alliance, again. 

        By Tsvetana Paraskova for Oilprice.com

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          Ford To Produce New Electric Cars In Canada – InsideEVs

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          Ford of Canada announced today that it will invest C$1.8 billion ($1.35 billion) in its Oakville Assembly Complex in Oakville, Ontario, to improve the plant and produce new battery electric vehicles.

          The company didn’t provide any more details besides that the site will start manufacturing all-electric cars in 2024. That’s some four years from now.

          “Based on the collective agreement ratified by employees today, Ford is committing to transform its Oakville Assembly Complex from an internal combustion engine (ICE) site to also become a BEV manufacturing facility, starting in 2024, as well as introducing a new engine program at its Windsor operations.”

          Maybe a quick look at the Oakville Assembly Complex’s current products will give us a glimpse of what to expect? Currently, the factory is making Ford Edge mid-size crossover SUV and Lincoln Nautilus (MKX) Mid-size luxury SUV.

          Well, it would be great to see an all-electric Ford Edge or BEV of a similar type, but the timing is very far away.

          Anyway, Ford intends to be the first all-electric car manufacturer in Canada.

          The official press release is also about other non-EV related topics concerning the Oakville Assembly Complex, like operational improvements to maximize production flexibility and agreement on employee wages, bonuses and other benefits.

          Previously, there were worries about the future of the Oakville Assembly Complex:

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          Nova Scotia company waiting on Health Canada approval for rapid antigen test for COVID-19 – CTV News Atlantic

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          HALIFAX —
          The Sona Nanotech lab in Dartmouth is making history by developing a rapid antigen test for COVID-19.

          “There was a moment of tremendous pride for the entire team, as Canadians, when our evaluation results came back from both third-party laboratories and in-field trials and it showed how strongly our test preformed,” said CEO David Regan.

          Here’s a simple breakdown of how the test works: After a nasal pharyngeal swab is administered, the swab is placed in a tube of solution for a few moments. Then, a sample of that is placed on a lateral flow test, like a pregnancy test. The results appear within 15 minutes.

          “The Sona Nanotech test is like a pregnancy test. It’s a lateral flow test and those pregnancy tests detect the existence of a hormone, our test detects the presence of the coronavirus,” said Regan.

          Sona Nanotech is the only company in Canada to come up with this technology.

          “The four antigen tests that have been approved in the U.S. so far are from billion dollar companies, multi-billion dollar companies, with vast resources,” said Regan.

          “This test at Sona Nanotech has been developed in the lab, here at the bays in Dartmouth based on research that was started at St. Francis Xavier University in the chemistry lab there and brought to fruition over the last nine months.”

          Regan says the test could help triage people faster and free up the health-care system.

          “A rapid test for COVID would be a great idea,” said Dr. Todd Hatchette, the Chief of Microbiology with the Nova Scotia Health Authority. “Having the ability to provide results within 15 or 20 minutes can be helpful in many different situations. But again, it comes back to primary concern, are these tests accurate, and are they sensitive to pick up the infection.”

          Regan says it is.

          “This is a screening device that can be used widespread to pick up not only the virus of those people that have symptoms but importantly, before people have symptoms,” he said. “At that stage, positives can be sent to the labs for confirmation but that will be result in much shorter turnaround times.”

          Right now, it’s a waiting game for the lab as they seek approval from Health Canada.

          In the meantime, the company is also working on a saliva at-home test, which is considered in the early stages of development.

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