Some of the world’s largest energy producers are convening in Doha this weekend in hopes of cutting a deal that would put a lid on oil production and raise prices. Energy traders are waiting to see if an agreement will finally be reached, especially given how elusive attempts have been in the recent past.
“In the December meeting, it was, ‘watch and wait,’” said Robert Thummel, a portfolio manager at Tortoise Capital Advisors. “And that ended up being a complete disaster because what the OPEC members have watched, they've watched oil (CLK16.NYM) prices spiral downward from $45 to into the $20s. This meeting offers the OPEC members an opportunity to really reboot their messaging points. And we think that that will be really critical in establishing a base for oil”
Crude prices have returned to the low $40 range but Thummel, whose energy-centric firm has $12 billion in assets under management, expects to see oil at $50 per barrel by year’s end.
“We've reached the bottom in oil,” he predicted. “The fact that U.S. oil production is falling really means that oil prices will just be going up from here.”
Thummel is also bullish on natural gas (NGK16.NYM) which, at $2 per mmBTU, is at its lowest price in nearly two decades. He sees it as taking market share away from coal.
“Going forward you'll see liquefied natural gas as a significant demand source over the next several years,” he said. “We have a really positive long-term outlook on the demand for natural gas.”
Thummel is long Permian Basin producers such as Pioneer Natural Resources (PXD). And with the U.S. now a growing energy exporter, Thummel remains positive on master limited partnerships (MLPs) that provide infrastructure to the industry. He also finds their dividend yields, some of which can be as high as 6% to 8%, another reason to find MLPs attractive in the current low-rate environment. Thummel is long MLPs like Enterprise Products Partners (EPD) and Sunoco Logistics (SXL), which currently have dividend yields of 6.4% and 7.7%, respectively.
“January was the first time ever we exported U.S. produced crude oil internationally,” he noted. “In February, we exported liquefied natural gas, or LNG, for the first time ever. And then in in March, we exported ethane, a natural gas liquid, for the first time ever. All of these commodities need infrastructure behind them.”
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