ConocoPhillips – Upside from Oil and Gas Recovery
After witnessing declines during the recent economic downturn, ConocoPhillips’ (NYSE:COP) sale price for crude oil and natural gas liquids (NGL) has started to pick up again. We expect the oil price to remain elevated going forward driven by a recovering global economy and growing demand from emerging countries. Other common factors that influence the rise are currency exchange rates and financial markets. ConocoPhillips primarily competes with ExxonMobil (NYSE:XOM), BP (NYSE:BP) and Anadarko (NYSE:APC) in the oil and NGL markets.
While we currently estimate that ConocoPhillips’s oil and NGL sales price will rise to $83 by the end of our forecast period (from about $63 today), the Trefis community anticipates a sharper rise to around $99 per barrel, suggesting an upside of 4% to our price estimate for COP’s stock.
We currently have a Trefis price estimate of $68.44 for ConocoPhillips’s stock, about 5% above the current market price.
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Growing Demand from Emerging Countries
The growth in economic activity in emerging countries and the corresponding rise in demand for oil has helped keep oil prices elevated. In 2000, China consumed roughly 4,772 barrels of crude oil per day, and this figure increased nearly 81% in 2009 to about 8,625 barrels per day. Comparatively, the number of barrels consumed in the US declined about 5% during the same period. At this growth rate, China could see demand levels outpace those in the US in the not so distant future.
In addition, as incomes in developing countries rise, households not only tend to consume more fuel but also move up the ladder in the type of fuel consumed.
Dependence on Financial Markets
If inventories of crude oil are low relative to prior averages, or in the view of market traders, it is typically an indication that demand is exceeding supply. Due to this implication, prices may rise even if there is no actual shortage. In the financial markets, prices are not determined by the physical supply but the open interest in a financial contract at any point in time.
Trefis Community Forecast
The Trefis community predicts the price of crude oil & natural gas liquids will increase from $74.40 per barrel in 2011 to $99.20 per barrel by 2016, compared to the baseline Trefis estimate of an increase from $65.7 in 2011 to $83.2 by 2016. The community estimates imply an upside of 4% to the Trefis price estimate for ConocoPhillips’s stock.
Do you agree with our forecasts? Modify the trend-line in the chart above to see the impact of various oil and gas price scenarios on ConocoPhillips’ stock value. And let us know your viewpoint in the comment box below.