The Case for a Longer-Term Oil and Gas Bull Market
Some traders have played with it short-term due to the global reflationary rebound, but few investors are willing to commit to it long-term at this point. It’s nothing more than a post-pandemic transitory bump in most peoples’ minds. The general consensus is that solar and wind technologies will take the oil and gas sector down over time, so there isn’t much opportunity left.
Investors piled into the sector a decade ago, constantly providing funding to shale companies that destroyed capital with drilling activities that were not free cash flow positive, while oil majors made bad acquisitions at cycle highs and suffered major write-downs as well. As a result, the sector’s total returns have been abysmal since 2008:
Now, after a decade of financial losses in the sector along with rising ESG mandates to restrict capital to the sector, there isn’t much funding for oil and gas companies or pipelines.
The companies in the sector don’t get rewarded by investors for reinvesting in growth anymore; they get rewarded by strengthening their balance sheets, being disciplined with drilling, producing free cash flow, and returning a lot of that cash to shareholders.
