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Quarter-End Insights

Our Outlook for Energy Stocks

Headlines focus on oil, geopolitics, and $4-per-gallon gasoline. We're more focused on natural gas below $4 per mcf.

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  • Geopolitics dominate oil markets, masking an underlying supply tightness and supporting high prices.
  • U.S. natural gas prices collapsed further this quarter, a sign in our eyes that E&Ps have finally capitulated. Now all that's left is the pain, as the industry works its way through the supply glut.
  • Producers might not be quick to switch back to gas drilling, given the economics in liquids plays. This might support higher gas prices during the next several years, as we think producers will require strong pricing signals before once again ramping up gas production.

West Texas Intermediate oil prices have remained above $100 a barrel here in the United States, but Brent, a better index for world pricing, has held around $125 this quarter, pressuring gasoline prices, which are now flirting with $4 on average. Although there's certainly some degree of fear premium baked into prices because of Iran and the possibility of a closure of the Straits of Hormuz in the event of a war, our read is that supply is only just covering demand, and spare capacity is getting tight.

Jason Stevens does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.