Oil & Gas - International Integrated Outlook: Prospects Dim

The Zacks Oil and Gas – International Integrated industry primarily consists of energy players with exposure to upstream, midstream and downstream businesses.  

The upstream activities involve exploring and developing of oil and gas resources worldwide, including U.S. shale plays, deepwater Gulf of Mexico in the United States, shale and tight oil acres in Argentina and Canada along with offshore resources in Western Australia.

Through global midstream infrastructure assets — comprising pipeline networks and storage facilities — firms transport and store oil, natural gas and refined petroleum products. The companies’ downstream businesses involve refining of raw crude to finished petroleum products. The downstream activities also entail distributing and marketing chemicals gasoline and other fuels.

Here are three major industry themes:

  • The oil pricing scenario will likely remain weak until next May when the supply of Iranian oil in the global economy will fall drastically. The radical decline will be resulting from the expiry of U.S. sanction waivers, which allow several countries to continue to import oil from Iran till mid-2019. Weak oil prices will thus provide less incentive to energy players to exploit oil resources and boost production, at least in the near term.
  • The spike in natural gas price in November made the commodity expensive, hurting demand. This has helped coal regain part of its market share for electricity generation, said Barclays PLC (BCS). Moreover, the slowdown in the global economy, affecting cleaner energy demand, will likely continue to push natural gas price lower. Hence, like oil, the possible weak natural gas pricing scenario is expected to hinder the commodity’s exploration and production activities.
  • Since explorers and producers will likely be a little reluctant to continue operations, the demand for pipeline and storage assets is expected to take a hit. Downstream energy businesses are also expected to take a beating since a slowing global economy could lower demand for finished petroleum products and chemicals — being utilized for manufacturing thousands of industrial and consumer products.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this ...

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