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Quarter-End Insights

Our Outlook for Energy Stocks

U.S. oil production shows strength, while political turmoil threatens the global oil supply outlook.

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  • U.S. oil production still looks strong. Recent data points suggest that Texas is becoming an increasingly more important contributor to U.S. supply growth while the North Dakota Bakken--while still on the upswing--appears to be slowing down.
  • Syria and Africa make for an eventful near-term global oil supply outlook. If we include Iran, recent events in these countries have removed almost 3 million barrels per day, or bpd, from the global oil supply picture. We consider the risk of a broader war between the various Middle Eastern oil producers rather low, but any negative developments could have an outsize impact on oil prices.
  • The outlook for U.S. natural gas prices still looks decent, but recent data points are mixed. Natural gas storage levels have increased since our last review (a negative), but overall U.S. dry gas production growth is slowing and the natural gas rig count is picking up, which we consider positive developments. An uptick in rigs in the absence of any meaningful movement in the future curve signals producers' need to offset declining production volumes to generate cash flow. On the demand side, we think there is substantial room for U.S. natural gas demand to exceed expectations by 2020, led by higher LNG, pipeline exports, and industrial demand.

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