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Quarter-End Insights

Our Outlook for Energy Stocks

Challenging the oil versus gas consensus.

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  • While the current outlook for supply/demand fundamentals favors oil, we believe that higher full-cycle shale gas extraction costs and potential fuel price arbitrage will better balance the scales with gas in the longer term.
  • However, in the near term, we are cautious on smaller E&P firms with high operating/financial leverage as they may struggle to weather temporarily depressed gas prices and/or potentially higher interest rates during the next 12-24 months.
  • While valuations in the Energy Sector appear fair, presenting few attractive near-term investment opportunities, we view XOM, RRC, SE, DVN, and BRGYY as excellent companies to own over the long term.

Eric Chenoweth has a position in the following securities mentioned above: XOM, SE, RRC. Find out about Morningstar’s editorial policies.