Oil and Gas Model stability as pressure on oil prices rises | IHS Markit

Research Signals – October 2018

Oil prices may be in for a wild ride as geopolitical and economic shocks threaten to spill over into markets. IHS Markit has raised its outlook on Brent and WTI prices in 4Q 2018 while noting that the next 18 months will be plagued by escalating tensions with Saudi Arabia, Iran sanctions, US trade protectionism with China and new administrations in Brazil and Mexico. We highlight steady stock selection success of the Research Signals’ Oil and Gas Model for global firms over recent oil price cycles.

  • Over the past five years, the model’s buy portfolio outperformed the sell portfolio by 1.23% on average monthly
  • The Oil and Gas Model has been particularly effective at identifying high quality names and has the desirable characteristic of being agnostic to oil price movement, with a correlation of just 0.07
  • W&T Offshore and Evolution Petroleum are currently ranked in the top quintile of Free Cash Flow Return on Invested Capital and Relative Net Income-To-Wells

Over the past five years, oil prices have come off a peak exceeding $100/barrel before hitting a trough in early 2016. Since that time, prices have recovered on a steadier price path. Heading into early 2019, IHS Markit expects prices to gather strength and has further raised estimates relative to the July outlook.

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Oil and Gas Model stability as pressure on oil prices rises | IHS Markit.