Photo by Timothy Newman on Unsplash

Boom or bust? When it comes to energy, many investors seem undecided with a little less than two weeks to go in 2024. But the natural gas-weighted producers we’ve emphasized lately — particularly EQT Corp (EQT) and Expand Energy Corp. (EXE) — are still trading close to multi-year highs.

The commodities look soft. Benchmark North American oil prices are again cutting under the $70 per barrel benchmark. And while continuous futures for natural gas are now over $3 per million BTU, they’re still at less than half their level of a couple years ago.

Energy price weakness tracks similar softness in other commodities. And we think it reflects an investor expectation for weaker Asian demand in 2025, with China’s stimulus failing to meet expectations. Should that scenario play out, we’d see an expanding global glut of oil as well as LNG. That would likely drive prices lower still and hold them there for a while, though sub-$70 oil already reflects that expectation to some extent.

EQT Corp. (EQT)

On the other hand, energy stocks are still well in the black for this year. During the energy down cycle of the previous decade, sector stocks as a rule underperformed the commodities — rising less when oil and gas prices were strong and dropping further when they weakened.

The fact that the stocks are now leading is an unmistakable sign that the long-term up-cycle is still alive and well. So is the strength in midstream stocks, which are still mostly well below 2014 peaks and are typically among the last to rally.

We’ve said before that North American shale is now 180 degrees from the Wild West it was a decade ago. Upstream, midstream, and downstream assets are in far fewer hands. And those left in the business are maintaining strict discipline on both operating costs and capital spending.

Shale discipline means producing less when prices drop. Companies are also focused on innovating to drive costs lower: ExxonMobil Corp. (XOM) this week announced a “custom proppant” that’s raising EURs at its Permian Basin properties by 15%, while slashing drilling and completion costs. And there are still far more acquisitions than new capital projects being announced.

EQT’s decision to take on Blackstone Credit & Insurance as a financial partner for its roughly 49% interest in the Mountain Valley Pipeline is a clear sign debt reduction remains an industry priority. And to the extent companies generate free cash flow in 2025, we can expect higher dividends and more stock buybacks.

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