From 5 year lows in 2020, crude oil prices have risen from below $20 per barrel to approximately $90 per barrel today as can be seen in the below charts from Trading Economics and Capnote. This is high compared to 5 year averages of $65-70. Morgan Stanley recently stated that the oil market is undersupplied by about 1 million barrels per day, suggesting prices may stay high for a while longer.
So where should analysts and investors look for growth when crude oil prices are high? Below are a few typical bright spots worth looking into:
- Petroleum Suppliers & Service Companies: These companies are likely to see growth in revenue, backlog and profitability when oil prices are high and more upstream petroleum projects are undertaken. We used Capnote to generate a portfolio of the oil majors and clicked on sensitivities to see the below list of most common suppliers in our data. TechnipFMC stock has risen 158% over the last year.
- Alternative Sources of Energy: When oil prices are high, consuming countries and companies become interested in securing cheaper or more easily available energy sources such as renewables, nuclear or even coal. Did you know coal prices rose sharply from $50 per ton in 2020 to over $400 per ton in 2022 in line with higher crude oil? However, note that this also coincided with the pandemic so its important to consider other market conditions as well.
- Petroleum Producing Companies & Countries: Last but not least, this may be the most obvious place to look for growth. Petroleum producing companies and countries directly benefit from the sale of crude oil. Below is a list of major producing countries from the Visual Capitalist. In the US, oil production typically comes from Texas, New Mexico, North Dakota, Alaska, and Colorado. Real estate in Texas appears to have benefitted from high oil prices as well as the net migration of workers.
In addition to thinking about growth, it is also important to think about cyclicality and plan in advance for the retreat of oil prices. You can save time and increase your awareness of key trends by using Capnote’s Smart Alerts and upcoming Trend Impacts feature. Watch this space and sign-up for free (no credit card required).