Five Favorites for Energy Investors

05/14/2019 5:00 am EST

Focus: ENERGY

Jim Powell

Principal Analyst, Global Changes & Opportunities

I think oil will go higher in the coming months; the summer “driving season” for the US and Europe is likely to push oil above $80 a barrel, argues Jim Powell, editor of Global Changes & Opportunities.

Saudi Arabia — the world’s largest oil producer — is keeping its output flat. The reason may not only be to keep prices up. It has been confirmed that the country’s oil reserves are lower than the Saudi’s have wanted everyone to believe.

Venezuela’s oil industry is on life support due to the bungling actions of the country’s socialist government and the economic collapse it is causing. Washington's sanctions are putting an additional squeeze on Venezuela’s oil exports, and are likely to be increased in the coming months.

Iran’s oil industry is also suffering under Mr. Trump’s tough sanctions that are expected to tighten now that the Revolutionary Guard has been designated a terrorist organization.

Libya is gripped again by conflict. The head of the country’s state oil company recently warned that output will soon decline. I expect to see a similar announcement by the government of Algeria.

Although Libya and Algeria aren’t major oil producers, when global supplies are already under pressure, every additional pinch will hurt.

The summer “driving season” for the US and Europe is likely to push oil above $80 a barrel — and even higher if the trade dispute with China is resolved and the global economy ticks up.

ExxonMobil (XOM) and Diamond Offshore Drilling (DO) are performing as expected. Exploration and development companies like Diamond are always the last to make gains when oil prices rise — but when their time comes they usually make up for lost ground quickly.

Cheniere Energy (LNG)  — America's leading exporter of liquefied natural gas — and Suncor Energy (SU) do nearly all of their business in North America, and almost none in the Middle East. The more threatened that energy production becomes globally, the better the outlook becomes for Cheniere and Suncor.

Energy pipeline company Kinder Morgan (KMI) deserves special attention due to its exceptional 30% rebound this year. It went from being a high flyer to a fallen angel when oil prices plunged from $120 to $36 five years ago.

The company is now rewarding patient investors who remained onboard until oil prices turned back up. I think more gains are on the way for Kinder Morgan. The company is extending its pipelines into topyielding oil fields in Texas and the Permian Basin.

Kinder also just increased its dividend 25% — and expects to do it again next year. It all adds up to a company that is still undervalued by investors — a situation that seems unlikely to last much longer.

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