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This year has been a true rollercoaster ride for the U.S. oil and gas market, but it is increasingly looking to end on a high note.
The sector is up nearly 16% over the past 10 days alone as the world moves closer to vanquishing one of mankind’s biggest threats in modern history.
The outlook keeps getting better for the oil and gas bulls.
Here are three key reasons why the bulls are likely to have the upper hand going forward.
#1. Covid-19 vaccines The oil and gas industry has been deeply out of favor over the past few years, thanks to huge supply/demand imbalances that only got much worse after Covid-19 struck. Indeed, trying to call a bottom on the bear market has largely been a fool’s errand as one step forward (OPEC production cuts) was immediately met by several steps backward (massive demand destruction due to global lockdowns).
However, the latest developments now offer hope to the incurable optimists that the worst might finally be in the rearview mirror for the industry.
At least two susscessful COVID-19 vaccines now mark a major turning point in the battle against one of our biggest existential crises.
Two weeks ago, Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX) reported that their joint mRNA-based COVID-19 vaccine candidate, BNT162b2, had demonstrated nearly 95% efficacy in preventing Covid-19 infections in ~44,000 test patients. A few days ago, the companies confirmed those numbers in their final analysis, including being 94% effective in those over 65 years old.
The good news came with a small caveat though: Pfizer’s vaccine needs a much cooler temperature of -94 degrees Fahrenheit (-70° C) and up to -109 degrees Fahrenheit for shipment for the vaccine to remain viable, which could pose a major challenge in some locations.
So news that Moderna‘s (NASDAQ:MRNA) Covid-19 vaccine candidate, mRNA-1273, has demonstrated similar efficacy as the Pfizer vaccine but remains stable at more manageable temperatures of 2° to 8°C (36° to 46°F), or roughly the same operating temperature of a standard home or medical refrigerator, for at least a month, was definitely great news.
More encouraging: Moderna has reported that its Covid-19 vaccine will cost $25 and $37 per dose depending on the amount ordered, roughly in the ballpark of a common flu shot, which costs anywhere from $10 to $50.
Even more encouraging news: The EU is likely to fast track approval for the Pfizer and Moderna vaccines, meaning they could enter mainstream distribution in its jurisdiction in a matter of weeks. Europe is experiencing the biggest second Covid-19 wave, with Germany, Poland, France, and Spain having gone back to lockdown in a bid to stem the spread of the deadly virus.
#2. More vaccines in the pipeline Other than his never-ending tweetstorm, Trump has mainly kept a low public profile after losing to Biden in one of America’s most divisive elections in modern history. But a few days ago, he came out and publicly accused Pfizer of delaying its Covid-19 vaccine ostensibly in a bid to ruin his chances at re-election.
Well, guess what, it appears several other pharmaceutical companies are guilty of the same curious timing of their own–maybe even better–vaccines.
The Pfizer and Moderna vaccines are based on Messenger RNA technology, which is not only speedier to manufacture and develop but is also well-suited to rapid adaptation.
Unfortunately, messenger RNA, or mRNA, is also delicate, requiring careful cold storage and handling that complicate distributions.
The great news: There are several other vaccines that could be better suited for more widespread distribution.
AstraZeneca (NASDAQ:AZN) and the University of Oxford have reported that their vaccine is 62-90% effective depending on dosage, but is cheaper than the Pfizer or Moderna vaccine and can also be stored at higher temperatures making it more accessible for lower-income nations. The AstraZeneca candidate is an adenovirus-vector platform that gives people an inactivated virus to stimulate an immune response making it more stable than Pfizer and Moderna’s “mRNA-based” vaccines.
CureVac‘s (NASDAQ:CVAC) says its CVnCOV vaccine is stable for three months at +5 Clesius or the standard refrigerator temperature. The vaccine remains stable for up to ready-to-use room temperature for 24 hours.
Sanofi and GlaxoSmithKline‘s have announced that their two-dose recombinant protein vaccine can be stored between 2°C- 8°C.
Johnson & Johnson also has a Covid-19 vaccine in the pipeline, which, if successful, could be stable at refrigerated temperatures of 2°C – 8°C for at least three months and up to two years at -20 °C.
In short, there seems to be no shortage of Covid-19 vaccine candidates that are potentially even more stable than the Pfizer/BioNTech vaccine.
#3. Undervalued sector
The U.S. and global energy sectors have been deeply out of favor for the past six years–so much so that the sector could now be significantly undervalued.
In fact, the sector now trades at a price-to-book ratio below one, the lowest in about seven decades.
That would not mean much in the face of the huge supply/demand imbalances that rocked the industry at the beginning of the year. But the situation is quite different now.
Over the past few months, OPEC has demonstrated admirable production discipline and will be looking to maintain that trajectory to avoid derailing the oil price recovery.
The long-term oil price outlook might not be too dire, either.
The age of renewables might be upon us, yet oil demand could keep growing and only hit a plateau in the late 2030s as per OPEC estimates. Granted, those rosy projections might quickly turn gloomy if many more governments go the U.K. route and decide to ban petrol and diesel vehicles on their roads by the turn of the decade. But so far, indications are that the fossil fuel sector might have at least several more years of dominance as long as the global pandemic can be quickly brought under control–and the prognosis is quite good.
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