News & Insights

Energy Market Will Continue to Tighten in Face of Highest Prices Since 2014
Chris Cook, CFA^®, Senior Equity Trader and Research

Basin: Silver Lining for Texas

2021 was a great year for the oil and gas industries.  The energy sector was up more than 53% -- the strongest performing sector in the market -- and had one of its best years for returns in recent history. 2022 is off to a strong start as well, with oil over $90 a barrel for the first time in eight years and up more than 30% since December. Energy markets are expected to remain tight for the foreseeable future, given post-pandemic demand increases, cutbacks by producers and geopolitical issues, including Russia’s invasion of Ukraine. 
Although many major oil producers have cut exploration and production budgets, there is some good news for Texas. The Permian Basin delivers a higher-margin barrel and is one of the lowest-cost regions for production. In fact, a recent Wall Street Journal article reported that “production is booming,” which might be true for the Permian, but not so much for other areas, where production is expected to remain relatively flat. Two cases in point are Chevron and Exxon, each planning incremental production increases overall, yet both companies have Permian production increases in the double digits. Considering the economics of producing in Texas, along with the current conditions in the commodities markets, we believe that Texas, particularly the Permian, should fare better than other U.S. regions.