As I mentioned on Monday, 2019 was not a great year for oil and gas stocks.
Commodity prices were driven lower by a supply glut partially stemming from the rapid resurgence in development of the American oil and gas industry.
The price of crude oil averaged about 9% lower than last year, while natural gas prices fell by an average 18%.
And if forecasts are correct, 2020 doesn’t appear it will be a spectacular year for fossil fuel stocks, either.
In a report published earlier this month, the International Energy Agency says global oil demand is expected to increase in 2020 to 1.2 million barrel of oil per day from 1.0 million barrels a day in 2019.
Despite the pretty solid growth in demand and supply cuts from OPEC+, however, the agency expects a significant surplus in the market for early 2020, writing, “Global oil inventories could build by 0.7 mb/d in 1Q20.”
This surplus will very likely pull crude prices down — or, certainly, contain them from heading higher. And as a result, there’s no great reason to be extremely bullish on oil stocks (generally) going into 2020.
The same goes for natural gas stocks, maybe even more so.
Due to the rapid development of tight resources (a.k.a. fracking), LNG technology, and policy/infrastructure for LNG exports in the U.S., a global glut in natural gas supplies is expected to linger through 2020 and beyond. So, again, there’s no great reason to be extremely bullish on natural stocks, either.
So 2020 (the beginning, at least) doesn’t look like it’s going to be a great year for either oil or natural gas stocks. But I don’t think it will be an absolutely terrible year, either.
As I said, the demand for crude oil is still expected to continue rising next year — and through at least 2040.
I mentioned on Monday that the IEA, for example, expects global oil demand to reach 106.4 million barrels a day in 2040, compared to just under 100 million barrels a day right now.
While it’s true that oil demand growth is expected to be lower in 2020 and coming years compared to previous years, there is expected growth nonetheless.
Still, I expect demand to take a backseat in the minds of investors and market followers next year. The 2020 oil and gas market will be all about supply.
A glut in supplies for next year has actually been expected for a while now. Due to those expectations, I think traders and market followers will be mostly supply-concerned going into next year.
There are, of course, unpredictable factors that could lead to rising oil prices. Trade concerns, terrorist violence, and attacks targeting oil facilities, tankers, or other infrastructure can all threaten the perception of stable supplies and lead to panic buying — particularly in a supply-concerned market. Yet increases in oil prices as a result of any of that would likely be short term.
At the end of the day, I expect 2020 will most likely be a mostly boring year for oil and gas stocks — as 2019 pretty much was. But (as I also said of 2019 on Monday) having a boring year is okay. It’s not bad.
First of all, boring is infinitely better than bad. I’d rather make a little money than lose any. But boring also shakes out weak hands and hype. Heck, I’d even argue having boring years is good for large international markets. So, chin up.
2020 will be a year to buy oil and gas stocks, not sell them. And from that perspective, I’m personally excited to go into the new year.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.