Underperformance has pushed energy sector valuation to attractive levels according to a recent ABN-AMRO Research and Strategy Oil and Gas sector update.
The report stated that according to weekly US inventory data, rising product demand has brought down inventory levels.
Natural gas inventories fell 38 Bcf, more than the expected 28 Bcf drop, cutting inventory overhang to 1% above the 2011 level. Oil Inventories fell by 1.5mln bbls while inventory levels remain 13% above last year and gasoline stocks fell by 1.5mln bbls.
“Oil prices fell modestly after a cease-fire started by mid-week to halt the military conflict between Israel and Hamas. However, scepticism on whether the cease-fire will hold and first signs that Chinese manufacturing is rebounding after seven quarters of slowing down could limit the downside potential for int’l Brent benchmark prices (relative to U.S. traded WTI). As a result, WTI’s price discount stayed at record levels. U.S. natgas prices continued the seasonal rebound due to falling inventories and below-normal temperature forecasts for next week,” said Jens Zimmermann, Equity Analyst at ABN AMRO.
The report also stated that energy valuations had fallen to attractive levels again. “Given the positive backdrop of rising oil and gas prices this week, energy stocks have also moved higher in absolute terms,” said the report. However, the stocks did not gain ground relative to the broader market as the MSCI Energy is still trailing the MSCI World by 2.6% in Q4, but the report states that sentiments for energy stocks will rise as China’s ‘green shoots’ put a floor under oil prices by stimulating global growth.
This week, WTI prices broke the downtrend which started in mid-September, with prices moving sideways between the 84.0 support and a resistance zone at 89.2-89.8.
