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Quarter-End Insights

Our Outlook for Energy Stocks

We're finally seeing some catalysts that could drive natural gas and associated firms much higher during the next 12 to 18 months.

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  • The European Central Bank appears to have damped investors' fears over a European collapse. Accordingly, oil prices jumped about 20% during the quarter as they responded to the reduced level of downside around the global GDP outlook for 2013, and a tighter oil supply/demand balance. Still, we don't think Mario Draghi's plan is enough and see downside for oil prices in the near term.
  • Spot natural gas prices have spiked nearly 60% since mid-April as a heat wave in the United States has boosted gas demand by nearly 25% over 2011 levels. As a result, natural gas storage levels are returning to normalized levels, which is a remarkable turnaround given earlier fears that natural gas storage would top out, forcing producers to shut in wells.
  • Low natural gas liquids prices are creating uncertainty around late 2012 and 2013 capital spending budgets, forcing drilling activity levels lower. However, we see this as part of a series of catalysts that holds great potential for natural gas and related companies during the next 12 to 18 months.

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Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.