Energy Rebounds but Advances in Technology Are Key

The US Energy Information Administration predicts US must keep up with technology to maintain its role as energy exporter

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Feb 06, 2018
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A key U.S. market indicator is predicting rising production for U.S. energy companies, couched by expectations that consumption will remain mostly flat.

In Tuesday’s outlook, the U.S. Energy Information Administration said continued development of U.S. shale, light oil and natural gas resources will alter the nation’s role in the industry as a net energy exporter by 2022. Since 1953, the U.S. has largely been an importer of net energy. In some cases, the agency says the shift will happen even sooner as drilling is on the upswing and oil prices are at their highest level in three years.

Investors took the agency’s energy outlook in stride as markets appeared to be normalizing after Monday’s historic lows. On Monday, the S&P 500 fell on par with the Dow Jones Industrial Average, which dropped more than 4%. By early afternoon Tuesday, the Dow was up almost 200 points to 24,507. The S&P was up more than 10 points to more than 2,650.

In afternoon trading, oil and gas stocks were inching up after last week’s disappointing earnings results from oil and gas giants Chevron Corp. (CVX, Financial) and Exxon Mobil Corp. (XOM, Financial).

The world’s largest oil producer, Dallas-based Exxon was staring at just under $80 a share, a drop of 0.60% -- a big improvement after the stock saw its lowest low in recent years, diving by, at one point, as much as 6%, in recent days.

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The earnings shortfall was blamed on weaknesses in international refinery operations, an issue that was touched on by the EIA.

In its report, the agency hinted on the idea that technological advancements are necessary in order for the U.S. to maintain its position as a major net exporter beyond 2040.

Investors also have been reacting to weekend news that the U.S. was contemplating a ban on oil imports from Venezuela, where companies like Valero Energy Corp. (VLO, Financial) and Chevron import a significant amount of crude oil. (Valero was down 0.12% to under $90 a share in early afternoon trading on Tuesday.)

Just before market close, California-based Chevron was up over 4% to more than $117 a share.

Other oil and gas companies' shares were also in the green. BP (BP, Financial) was up 0.70% to over $40 a share. Royal Dutch Shell (RDS.A, Financial) (RDS.B, Financial) was up .0.27%. Other companies that were in the green included: Statoil ASA (STO, Financial), Ecopetrol SA (EC, Financial) and Imperial Oil Ltd. (IMO, Financial).

Investment gurus, such as Mario Gabelli (Trades, Portfolio), have signaled high expectations for oil and gas in 2018. The looming question now is whether a flat demand for the commodity will affect stocks prices long term. This year, the Brent crude index reached a three-year high of almost $70 a barrel.

The EIA says U.S. crude oil production reached its highest level in over four decades at more than 10 million barrels per day in November. It has predicted U.S. oil production in 2018 will surpass Saudi Arabia and possibly Russia.

Better technology

Chevron CEO Mike Wirth said in Friday’s earnings call that just because oil prices have recovered, that doesn’t mean the hard work is over.

He emphasized the need for more technological advancements, an issue that was highlighted in Tuesday’s energy outlook.

The agency’s outlook highlighted favorable geology and technology developments that would boost exports, noting exports could decline after 2040 as a result of lack of technology improvements.

Estimates are that energy consumption will grow about 0.4% per year on average from 2017 to 2050, which is less than the rate of expected population growth (0.6% per year).

Annual real gross domestic product (GDP) growth is expected to average 2.0% through 2050, the agency reports.

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