Oil Appears Ready to Break Out of Its Price Rut

All signs point toward a big rebound for beaten-down oil stocks in this new year. While prices have perked up recently, not all of the optimism appears to be baked in—meaning this is a good opportunity for investors to get in.

That’s the word from several Wall Street savants, ranging from Dan Yergin, vice chairman of IHS Markit and a renowned energy strategist, to hedge fund manager Dan Niles, of AlphaOne Capital Partners, a well-regarded stock picker.

Energy was last year’s worst-performing S&P 500 sector, down 37.3%, according to Yardeni Research. The nation’s largest energy company, Exxon Mobil, was off 41% for the year, worse than the sector average. The three quarters the company has reported were all negative, and analysts worry that it will be forced to cut its lush dividend (now yielding 8.5% due to the stock downdraft).

Now is the time to buy oil stocks, Niles believes. He recommends the Energy Select Sector SPDR ETF, an exchange-traded fund that covers the entire sector, including Exxon. In a report, he argued that “reopening economies will lead to an improvement in oil demand in 2021.”

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Yergin, appearing on CNBC, echoed this reasoning and pointed out that, while the price of oil has risen from the depths of last spring, it is trapped for now in a trading range, which he called “virus alley.” That bracket, between $40 and $50 a barrel, has been the case for a while. Crude closed out last year at $48.42.

“When people resume flying and driving, the price will break out, probably in two or three months,” he said. “Then demand will be back to 2019 levels.” He said he expected it to reach a $55 to $65 band.

Over the past year, oil had a wild ride, starting out at $60. With the onset of the pandemic, the price even fell into negative territory, meaning oil companies had to pay customers to take the stuff off their hands. The price finally lurched out of that abyss to settle at $10. News of vaccines has prompted it to increase further, but lately it is stuck in Yergin’s virus alley.

Another part of the equation is the supply of oil. The Organization of the Petroleum Exporting Countries and other producers such as Russia (together known as OPEC-plus) have lowered their output. And US sanctions have kept Iranian oil off the market.

“A lot of oil is on the sidelines,” ready to feed any improved demand, Yergin said. He added that US shale drillers, many of them hurting, face consolidation, which should allow them to participate in the recovery. Hence, investors should look at them, in particular.

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Tags: Dan Niles, Dan Yergin, Energy Select Sector SPDR ETF, ExxonMobil, oil and gas, oil prices, OPEC-plus, Pandemic, S&P 500, shale drillers

The state treasurers of Pennsylvania and Rhode Island, along with United Church Funds, have filed a shareholder proposal calling on biotech firm Gilead to create an independent board chair after it was accused of selling COVID-19 treatment remdesivir for more than 500 times what it costs to make.

The shareholder proposal filed by Pennsylvania Treasurer Joe Torsella and Rhode Island Treasurer Seth Magaziner says an independent board chair would ensure Gilead management is held accountable for any mistakes or misconduct that harm patients and investors, and it cited as an example the company’s pricing of remdesivir.

The treasurers also questioned the effectiveness of the only antiviral drug approved by the US Food and Drug Administration (FDA) to treat COVID-19. They cited a National Institute of Allergy and Infectious Diseases clinical study that found that remdesivir did not reduce fatalities and only modestly shortened the length of hospitalization. They also noted that remdesivir was an existing drug that was repurposed to combat COVID-19, and that it was initially funded by at least $70 million in US taxpayer dollars as an antiviral drug to fight Ebola.

“Gilead had the opportunity to provide this treatment—developed with taxpayer dollars—equitably and fairly,” Torsella said in a statement. “Nearly a year since the first coronavirus case and months since remdesivir was approved to treat patients, Gilead continues to force families and our health care system to pay exorbitant prices for a drug that still hasn’t been proven [effective] in reducing fatalities.”

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Torsella said a system of checks and balances on management is needed to “strengthen the oversight of decisions that affect families and improve long-term shareholder value.”

The treasurers cited a study from the Journal of Virus Eradication that calculated that it costs Gilead approximately $1 to produce a vial of remdesivir for which its charges $520 each, or $3,120 per treatment course for US patients with private insurance. The study also estimated that the company charges $390 per vial or $2,340 per treatment course for patients with government insurance.

They also cited another report that estimated that if Gilead were to price remdesivir at just one-eighth of its current price, the company would still receive between $247 million and $1.4 billion in net profit for sales in the US alone.

“It’s unconscionable for a drug company to price-gouge patients in need of medicine that could help them, particularly during a global pandemic,” Magaziner said in a statement. “It is time for an independent board chair to be appointed to strengthen oversight of the company.”