Oil And Gas Capex Renaissance

We explore the outlook for oil and gas capex for the next couple of years.

Oil And Gas Capex Renaissance

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Oil And Gas Capex Renaissance

In the world of commodities, few sell-side publications have the reputation of the annual ‘Top Projects’ report that Goldman produces. This report was one of the few occasions when, as an entry-level analyst at Goldman, I had buy-side portfolio managers proactively reaching out for an intro to the lead analysts behind the report, rather than me having to incessantly chase them to showcase the ideas GS had to offer. This report was one of the few times I experienced having “leverage” as a sell-side analyst, and I have to be honest – it felt good.

This year, there are important takeaways from the report that reinforce the view of a tight oil market for many years to come unless prices move higher. Let’s dive in.

Where We Are:

Oil and Gas Capex, Resource Life
Historical Oil growth

Where We're Headed:

Oil Supply and Demand 2025
LNG Capacity Additions, Qatar, North America

What to Make of It:

We all know how cheap oil and gas companies currently trade, so there’s plenty of work to do in that sector if you want to find good companies to invest in.

S&P 500 sector valuation vs history dividends buybacks

The report has also laid out the cyclical bull case for Oil Services companies – those that are directly exposed to the increase in capex budgets. This is also an area we discussed with Harris Kuperman a few backs on our Ides of Macro podcast.

The OIH (US oil services) has lagged the XLE (US energy sector) and XOP (US E&P companies) since 2020, and that makes sense – the performance of oil services companies depends not on oil prices, but mostly on growth or reduction in capex budgets of oil and gas companies (which in turn depend on the future outlook for oil and gas, amongst other indicators).

XLE, XOP, OIH, Energy Capex, Oil Services

This means that the oil services sector should outperform not when the price of oil moves higher, but when the outlook for the price of oil is bullish enough, for a long enough period of time, to allow oil and gas companies to increase their capex budget – which, according to Goldman, is where we find ourselves now.

We’re not convinced that this is the right moment to jump into oil services, but in any case, doing proper research takes time, and if you believe Goldman is directionally correct, then the place to look is OIH, the US oil services ETF – components are listed below, sorted by market cap.

We’d look for low leverage, high FCF generation, and solid counterparties. But you do you.

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Two Asset Allocation Strategies from Great Generalist Thinkers

Marko Papic:

Lyn Alden:


According to Jeffries, 90% of SPX companies are currently trading above the 50-day moving average trend-line. Since the 1990s, this has almost always coincided with positive returns over the next 12 months. It seems we’re heading toward All-Time Highs again, and if you were one of the few investors that was pitching this contrarian view in December 2022, when the whole world was bearish, let me tell you “Bravo!”.

SPX Momentum, Positive Returns

US Dollar


If you’re not already signed up for our Research tier, here’s a nudge to give it a shot. This is what we covered last month:

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Thanks for reading through! Obviously, none of this is investment advice.

As always, we'll see you out there...

Published in: Markets
Diego Tremiterra

Co-founder and Editor-in-Chief. Covers Markets, Business, and Thematic Oversight. Currently a hedge fund Jr. PM, ex-Goldman Sachs capital markets and startup COO.

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