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Oil-exporting nations and Russia, or OPEC+, have agreed to increase production by 100,000 barrels a day next month. While the 23-nation alliance’s decision grabbed headlines, the rise is small, if not insignificant, to cool oil prices.
US President Joe Biden recently visited Saudi Arabia in the hope that the rise in oil production would be greater. Bob McNally, president of consulting firm Rapidan Energy Group, said the increase is minimal and almost imperceptible. He added that OPEC+ had done the absolute minimum, and it was a purely token gesture.
However, investors are likely to hold on to their oil stocks or accumulate more. While the energy sector was down 4.22% mid-week, it is still up 36.56% year-to-date. In 2021, the collective annualized return of the sector’s constituents was 41.8%, the highest among the 11 primary sectors.
Solid second half
Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners LP, is an oil bull. He predicts a very, very strong second half through this year for oil producers. He said: “We were structurally undersupplied at the start of this year. We were already approaching the exhaustion of OPEC spare capacity.
According to oil cartel delegates, the group’s limited reserves of unused production capacity were best saved for later this year. Members believe crude markets will tighten, as the United States reduces the release of its emergency stocks. The International Energy Agency (IEA) has confirmed that unused supplies in the Middle East have fallen to “thin” levels, or 2% of global demand.
Record cash flow
Cheap but profitable investment options today are Athabasca Oil (TSX:ATH) and NuVista Energy (TSX: NVA). The two energy stocks are flying high with their year-to-date gains of 81.51% and 50.43%, respectively. The former is trading at $2.16 per share, while the latter’s share price is $10.47.
Athabasca posted record adjusted cash flow ($85 million) and free cash flow ($36 million) in the second quarter (Q2) of 2022. Management believes it is well positioned and low indebtedness as the company generates strong free cash flow, due to the low-declining, oil-weighted asset base.
The developer of $1.26 billion in thermal and oil assets projects through the end of 2022 with adjusted cash flow of $350 million, including free cash flow of $220 million. For the period 2022 to 2024, its free cash flow is expected to be around $950 million.
Nuvista’s adjusted free cash flow in Q2 2022 increased 30% to a record $200 million from Q1 2022. Net income reached $178 million, or 153% year-on-year ‘other. Management said production and operating performance during the quarter exceeded its expectations.
The $2.41 billion oil and gas company has the strength and growing momentum to deliver more in 2022. Market analysts have a high 12-month price target of $20, up 91% from relative to its current share price. NuVista’s capital gains will more than offset the non-payment of dividends.
No relief for consumers
Ahead of the OPEC+ decision, Brent and West Texas Intermediate crude futures fell to US$96.78 and US$90.66 a barrel, respectively. This is the weakest performance since February 2022. Due to the symbolic increase in production, the market will remain tight. Thus, there is no relief for consumers who will have to bear high oil prices.