Oil outlook 2024: ‘midstream stocks to offer strong income play’

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Stacey Morris, head of energy research at VettaFi tells IGTV’s Angeline Ong why midstream energy can offer investors attractive income and relative insulation to commodity price volatility.

 

 

Shares Commodities Petroleum Price of oil Energy industry OPEC

 

 Angeline Ong | Financial Analyst, Presenter and Content Editor, London | Publication date: Wednesday 03 January 2024 11:36

Morris mentions Williams Companies, Enbridge, and TC Energy.

(AI Video Summary)

OPEC Plus plans to cut production

Stacey Morris, head of energy research at VettaFi, recently appeared as a special guest on IGTV's "Trading in the Markets" to discuss what's happening in the oil and gas market. She talked about how OPEC Plus, a group of oil-producing countries, plans to cut production, but this hasn't had much impact on oil prices. On top of that, there are concerns about ongoing wars and the possibility of the Federal Reserve reducing interest rates soon. Morris explained that the oil market is uncertain because people are sceptical about how much oil will be taken off the market in the first few months of next year. It turns out that the expected cut of 2 million barrels per day might be smaller than anticipated because the OPEC Plus group is having some issues with cooperation.

2024 projected as a tough year for oil

To make things more challenging, other countries like the United States and Guyana are increasing their oil production. With all these factors combined, it seems like 2024 will be a tough year for oil, with not many growth opportunities. Morris believes that oil prices will remain relatively stable with only slight improvements or declines. She doesn't expect any significant movements unless unexpected events occur, and she doesn't think oil prices will reach $100 per barrel next year. Given this outlook for oil prices, Morris suggests investing in the midstream energy sector. These companies are involved in operating pipelines, storage facilities, and processing facilities, which generate consistent profits. Even though oil and natural gas prices have been weak, midstream companies have performed well and provided generous dividends to their investors. Morris expects this trend to continue in 2024 as these companies prioritise returning cash to their shareholders.

Midstream energy sector: a different way to invest in the energy industry

When asked about potential disruptions to the midstream energy sector due to elections, Morris doesn't see it as a major threat. She believes that campaign promises often differ from reality, and the midstream sector is mainly driven by the volume of demand rather than political factors. While there may be more regulations around pipelines, it would only increase the value of existing assets. Morris also mentions some interesting smaller companies in the midstream energy sector, like Enbridge and TC Energy in Canada, as well as Kinder Morgan and Williams in the United States. These companies provide a different way to invest in the energy industry compared to larger European companies, and they offer stable income and defensive energy exposure that is less affected by changes in commodity prices.