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'Asinine' Cash Flow: Energy Analyst Revises Forecast On Energy Stocks, Crude Oil Prices - 'Facts' Have Changed

Fundamentals will win, and shareholders will benefit from energy companies generating "asinine amounts" of free cash flow, says energy analysts at HFI Research. HFI is a contrarian investment research firm whose current focus is on the energy and natural g...

Benzinga · 07/27/2022 13:14

Fundamentals will win, and shareholders will benefit from energy companies generating "asinine amounts" of free cash flow, says energy analysts at HFI Research.

HFI is a contrarian investment research firm whose current focus is on the energy and natural gas markets.

“We strongly believe that we are now finally exiting the bear cycle in the energy sector and there are many multi-bagger opportunities on the horizon,” the research firm said.

Energy stocks in the S&P 500 are up 48% in 2022, according to data from S&P Dow Jones Indices. Gas companies Exxon Mobil Corp (NYSE:XOM) and Chevron Corporation (NYSE:CVX) are up 43% and 25% for the year, respectively. Marathon Oil Corporation’s (NYSE:MRO) stock price has risen 39%, and Berkshire Hathaway-favorite Occidental Petroleum Corporation (NYSE:OXY) is up 102%.

Also read: Will Federal Reserve Raise Interest Rates 0.75% or 1.00%? Here's What Analysts Are Saying Ahead Of Fed Meeting

In 2020, when the Covid-19 pandemic spread, businesses shuttered, people stopped traveling, and oil consumption fell precipitously. As a result, energy stocks suffered.

Now, however, price increases have been accelerated by Russia's invasion of Ukraine, having already been supported by rising consumer demand as the world advances past Covid, along with falling supply due to top oil-producing countries cutting back on production.

“The facts have recently changed for the global oil markets,” HFI said. “Europe just clarified that trading houses can legally trade with Russian entities — as a result, we have revised lower Russian crude production loss from ~1 million b/d (book depreciation) to 0.5 million b/d.”

Due to increased demand from trading companies carrying Russian crude to India and China rather than Europe, the tanker market is anticipated to remain extremely competitive.

A few oil tanker stocks to watch are:

  • Teekay Tankers Ltd (NYSE:TNK)
  • Nordic American Tankers Ltd (NYSE:NAT)
  • Navigator Holdings Ltd (NYSE:NVGS)

Saudi Arabia's Crown Prince, Mohammed bin Salman, recently said during an address to the Security and Development Summit in Jeddah that the country will not have additional capacity to increase its oil production beyond 13 million barrels per day — the country produces around 12 million barrels per day right now.

To that end, HFI revised Saudi production up to 10.75 million b/d average for the third quarter and 11 million b/d for the fourth quarter.