When an oil futures contract went negative in April of last year, it marked a capitulation by investors and a culmination of seven years of prices consistently grinding lower.
Today, after years of underinvestment in the sector amid the ESG push for renewable energy, the price of the U.S. oil benchmark is near $80 with calls for it to surpass $100 this winter.
J.P. Morgan Strategist Dubravko Lakos-Bujas was bang on when he recommended oil and oil stocks last year. Here are his five reasons this rally for oil and oil shares will continue.
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Underpinning the Bull Case:
- While oil prices are 25% above pre-Covid levels, the group of large-cap energy shares is still down 2%.
- All U.S. producers were profitable in the second quarter, versus 33% a year ago and 91% pre-COVID.
- Energy shares trade at a near-record low relative to their book value.
- They offer attractive dividend yield of about 4% — versus 1.4% for the S&P 500 and a 10-year Treasury yield of 1.5%.
- Share buybacks could return to the level of $40 billion a year, as seen in the 2012-2014 period, should oil prices stay elevated.
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