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This article was written exclusively for Investing.com
- US energy policy supports oil and gas prices
- The booming demand for natural gas around the world
- LNG has internationalized a domestic market
- APA: a profitable producer
- Cheap stock end of 2021
The price of CME’s NYMEX division fell from the lowest level in a quarter of a century in June 2020, to the highest price since early 2014 in October 2021. The price of the energy commodity has increased more than four times and a half from its lowest to the top.
The price of natural gas is as combustible as the commodity in its raw form when it is extracted from the earth’s crust. Since natgas futures began trading in 1990, the price has been as low as $ 1.02 down to $ 15.65 per MMBtu.
Futures contracts reflect the price at the Henry Hub in Erath, Louisiana. Natural gas at other delivery points in the United States can trade at huge discounts or premiums in the futures market, which is the benchmark. Beyond the US pipeline system, natural gas prices may be even higher than the highest US domestic price, as we saw in 2021. Natural gas shortages in Asia and Europe have pushed gasoline prices at record levels in these regions.
Through its subsidiaries, APA Corporation (NASDAQ 🙂 explores and produces oil and gas properties. The company operates in the United States, Egypt and the United Kingdom and has exploration activities off the coast of Suriname.
APA, based in Houston, Texas, operates collection, processing and transmission assets in West Texas and owns four Permian to Gulf Coast pipelines. In our opinion, there are five reasons APA is an energy company to put on your investment radar for 2022..
1. US energy policy supports oil and gas prices
On January 21, 2021, his first day in office, US President Joe Biden canceled the Keystone XL pipeline project. In May, the administration banned hydraulic fracturing and oil and gas drilling on federal lands in Alaska. The Biden administration has tightened regulations on fossil fuel production and intends to shut down pipelines that cause environmental damage.
Meanwhile, US and global energy demand is booming. Oil and gas prices rose significantly in 2021, even after recent corrections from the peaks in October.
It took decades for the United States to achieve energy independence. However, in 2021 the pendulum swung backwards, giving OPEC and Russia pricing power in the global oil market. In recent months, as gasoline prices hit their highest level since 2014, the Biden administration has twice called on the cartel to increase production.
OPEC + declined after suffering low prices due to increased shale production in the United States in recent years. In November, the US president signed an executive order releasing fifty million barrels of US strategic oil reserves to lower prices. The measure may have temporarily worked as the NYMEX fell from over $ 85 to below $ 63 a barrel.
However, the release of SPR was symbolic since it only represented three days of American consumption. As the United States sold oil in November, Chinese imports of hydrocarbons soared.
Source: Reuters
China’s crude oil imports rose 14.3% to 10.17 mbpd in November. Chinese demand alone accounted for almost all of the US SPR exits.
The Biden administration has put the United States on a greener track when it comes to energy production and consumption. However, fossil fuels continue to power the world, and the overwhelming majority of American cars run on gasoline.
The bottom line is that the strong demand for traditional energy products, as the United States is now on a greener path, has reduced global supply even as demand increases.
2. The booming demand for natural gas around the world
In November, Chinese LNG imports increased by 14.4%.
Shortages in Asia and Europe have caused global natural gas prices to skyrocket, putting upward pressure on US prices.
Source: CQG
The chart above shows that nearby NYMEX natural gas futures peaked at $ 6.466 per MMBtu in October, the highest price since February 2014.
Even though they fell to the $ 3,599 level at the end of last week, they were still over 45% higher than at the end of 2020. The volatile energy product was back at nearly $ 4 per MMBtu December 28.
3. LNG has internationalized a domestic market
Thanks to technological advances, natural gas has become an exportable commodity that no longer depends on pipelines. Liquefaction technology allows LNG to flow from the United States and other producers around the world via tankers.
Additionally, US-Russian tensions over Ukraine could lead to sanctions on Russian gas pipelines to Western Europe, bolstering demand for US natural gas exports. With much higher prices overseas, US producers and LNG processors are likely to divert US production overseas, straining domestic supplies as US regulations do not support new production.
Existing producers are likely to benefit from this as few new businesses are emerging due to the regulatory environment.
4. APA: a profitable producer
ABS operations nationally and globally, as well as in the North Sea, generate high free cash flow rates with exposure to oil prices, low operating costs and minimum capital requirements.
APA also has a long track of drilling opportunities in the high growth, low cost Permian Basin. APA’s Suriname partnership with Total (NYSE 🙂 opens the door to the development of large-scale production.
Over the past few quarters, the APAs have been impressive.
Source: Yahoo Finance
The chart shows that APA has beaten analysts’ earnings expectations for the past four consecutive quarters. Current estimates for the fourth quarter of 2021 are $ 1.48 per share.
A survey of 28 analysts by Investing.com has a 10-month average price target of $ 34.02 per share, up nearly 22% with the stock price just below the $ 28 level on the 27th. December.
Chart: Investing.com
Forecasts range from $ 23 to $ 45 per share, and the overall consensus on the stock gives it an “Outperformance†rating.
5. Cheap stock end of 2021
At the height of the pandemic, in 2020, APA shares fell to $ 3.80 per share.
Source: bar chart
The long-term chart shows that the first level of technical resistance for stocks is at the January 2020 high, at $ 33.77 per share. The APA has been trending upward from the March 2020 low.
Along with the bullish stock price momentum, APA shareholders receive an annual dividend of $ 0.50 per share, resulting in a return of 1.79% priced at $ 27.97 on December 27. .
The APA could be a rough diamond in the traditional energy sector in 2022. With many analysts calling for $ 100 a barrel for crude oil and natural gas making lower lows, the APA will continue to do so. benefits.
Higher profits should boost the share price. In an environment where the stock market is hitting or approaching record highs and locating value is difficult, I am optimistic about the outlook for APA stocks in 2022.
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