Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: Despite Investor Apathy, RJ Conference Crowd Ready for Energy Stocks to Catch up to Oil
March 12, 2018

Despite historically low energy weightings and investor apathy, generalist attendees at our annual energy dinner appear optimistic on oil, cautiously optimistic overall, and still bearish on gas. Normally, the ''Energy Dinner'' at our annual investor conference is overbooked by 1.5x - 2x. While we still had a full house, interest in the dinner and energy related presentations was at a decade plus low. Despite a more investor and generalist focused crowd than our NAPE dinner from last month, the outlook seemed largely similar.

Indeed, we saw one of the tightest groupings of consensus for 2018 exit oil prices, with over 70% of attendees projecting well above consensus year-end 2018 oil prices of between $60-70/Bbl. This is much higher than the strip for December 2018 at ~$58/Bbl and only slightly below the RJ forecast of $70/Bbl by year-end. Despite this generally positive outlook (not to mention significantly higher spot crude prices) the energy sector remains near historic lows as a percentage of the S&P (~5.6% currently). Most agreed that the answer to ''what is driving the disconnect between oil prices and equities?'' was the steep oil price backwardation weighing down oil and gas stock performance. Investors are still concerned about the longer-term implications of 1) huge U.S. supply growth at $65 oil, 2) the end of the OPEC cuts and 3) EV demand fears. Most investors also doubt E&P's will live within cash flows and most are much more bullish on oil and in-line with gas relative to the futures markets. Service equities were the top selection for best investment among the group of attendees for the second year in a row. We agree that service cost escalation will be meaningful, particularly in pressure pumping, which will be the major bottleneck in the coming cycle.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The S&P 500 is an unmanaged index of 500 widely held stocks. The Oil Services Index (OSX) comprises 15 of the largest oil service companies. The S&P SuperComposite Oil and Gas Exploration & Production Index (S&P Oil and Gas E&P) consists of all oil and gas exploration and production stocks included in the S&P SuperComposite 1500 Index. Investors cannot invest directly in an index. Additional information is available upon request.