Published by Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.)
Despite the growth in alternative fuels and renewable energy sources, global demand for oil continues to grow.
The price for crude is also expected to stay high, the International Energy Agency said Oct. 12 in its monthly report. Both trends are good news for producers and integrated energy firms. The IEA expects supply to be further constrained as U.S. sanctions on Iran kick in.
The IEA represents 30 of the largest oil producing countries, including Canada. According to the IEA’s 2018 annual outlook, the world is pumping out more oil and petroleum liquids than ever before. Global supply rose to 100.3 million barrels a day in the third quarter. That level is 2.3% higher than the same period last year ago. It sees similar annual growth ahead.
In another sign of the times, OPEC expects annual global oil demand to reach nearly 112 million barrels per day by 2040 – 12 per cent higher than now – driven by transportation and petrochemicals.
With both higher demand and prices, the profitability of major oil companies now approaches or, by some measures, exceeds the levels before the 2014 crash.
The New York Times reported Oct. 8 that for eight of the world’s largest oil companies including ExxonMobil, Chevron, BP and Royal Dutch Shell, combined free cash flow, a measure that tracks the money going in and out of company coffers, was US$30.9-billion in 2017 – far higher than the US$3.8-billion recorded in 2014, when oil prices were far higher. That was after paying a rich US$46-billion in dividends.
The article quoted the CEO of Italian oil multinational Eni, who said only a small fraction of global energy needs can be met by renewables like wind and solar. As a result, oil and gas seem likely to remain important fuels for decades, he said.
Each of the companies named in the Times article, including ENI, are part of the Harvest Energy Leaders Plus Income ETF (TSX: HPF, HPF.U). The ETF invests in an equally weighted portfolio of 20 global energy companies that are dividend paying with a minimum market capitalization of at least $10 billion. The fund’s 5-year average return on equity as of September 30, 2018 was 8.1 per cent. The average dividend yield is 2.69%.- AM