It is no secret that the energy sector has suffered after oil fell from $100 to under $50 faster than almost even the most bearish traders expected. Now we are seeing $60 oil prices again. That being said, and without trying to expect that $60 will be the new normal, how likely is it that we have seen the worst in the prices of black gold?
The latest recovery in prices is likely attributed to a couple of key issues, both of which are overseas and both of which may fall under geopolitical risks because they are by and large outside of the hands of traditional domestic supply and demand issues.
A protest in Libya has reportedly shut down one of the nation’s top export hubs for Libyan oil. Also, Saudi Arabia has reportedly raised prices for oil it sells to the United States and Europe. Could it be that demand trends have solidified enough?
So, again, did oil bottom out in the mid-$40s? It is possible, even if the oil price in the low $60 handles does not hold up. Of course, time will be the ultimate judge. What about what the big boys in oil and gas are saying?
Exxon Mobil Corp. (NYSE: XOM) reported what every investor is hoping to be at or close to the trough in the first quarter. The integrated oil and gas giant posted earnings per share of $1.17 on revenues of $67.62 billion. In the same period a year ago, the company reported $2.10 per share on revenues of $106.33 billion, and the Thomson Reuters consensus EPS estimates were $0.82 on revenues of $53.15 billion. Exxon Mobil had also just raised its dividend ahead of earnings as a sign that it wants to keep raising the dividend. Maybe Warren Buffett simply sold out too soon. We presented the case in mid-March how certain indicators and patterns could indicate a bottom. Exxon Mobil shares hit $90 on Tuesday again, for the first time since mid-February.
BP PLC (NYSE: BP) recently reported its first-quarter earnings as well. The company still faces a massive fine, but it is committed to keep paying a solid dividend. The oil and gas giant reported earnings per American depositary share (ADS) of $0.85 on revenues of $54.92 billion. In the same period a year ago, the company reported earnings per ADS of $1.14 on revenues of $92.99 billion. BP currently pays a quarterly dividend of $0.60 per ADS. The dividend yield is a lusty 5.9%. Ahead of earnings, BP had received two key analyst downgrades in two days.
Enterprise Products Partners L.P. (NYSE: EPD) is now the king of master limited partnerships (MLPs). It recently reported results that felt like a mixed report card. Still, the stock closed up on the week with a price of $34.22 last Friday, and with a distribution rate (yield equivalent) of about 4.5%. We have covered additional reports from Merrill Lynch and Credit Suisse on Enterprise (see below).
One issue that may work against a bottoming out in crude oil, is that David Einhorn just came out with his short sale case against major frackers like Pioneer Natural Resources Co. (NYSE: PXD), Whiting Petroleum Corp. (NYSE: WLL) and several others. His short-sale call was more against fracking than it was against oil prices, and it appears to have had more of an impact on Pioneer versus Whiting. One thing that may have helped out Whiting was that it had analyst upgrades and defending calls after its earnings report. On Pioneer, well it is among the king of kings in fracking. With a $25 billion market cap, David Einhorn called Pioneer the Mother Fracker — does anything more need to be said here?
Anyhow, 24/7 Wall St. aims to cover both sides of the coin when it discusses bottoms in a market — or tops in a market for that matter. We have included outside and company commentary around the earnings reports for additional color on each company with additional commentary on the oil sector in general.