The AI Boom Is Powering Gas-Pipeline Stocks
Written by Emily J. Thompson, Senior Investment Analyst
Updated: May 21 2024
0mins
Source: barron's
- Pipeline Stocks Outperforming: Pipeline stocks are the best-performing segment in the energy industry recently, surpassing oil producers and refiners.
- AI Data Centers Driving Demand: Rise of artificial intelligence and data centers is increasing the need for natural gas to power these facilities, benefiting pipeline companies.
- Strong Performance of Leading Companies: Kinder Morgan, Williams, Enbridge, and Oneok have seen significant stock price increases due to the demand from data centers.
- Future Growth Expectations: Analysts predict a doubling or tripling of electricity demand from data centers in the next five years, potentially boosting demand for pipelines.
- Investor Confidence Restored: Midstream companies have restored investor confidence by strengthening balance sheets, increasing dividends, and making structural changes.
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Analyst Views on XOM
Wall Street analysts forecast XOM stock price to fall
19 Analyst Rating
12 Buy
7 Hold
0 Sell
Moderate Buy
Current: 171.470
Low
114.00
Averages
132.17
High
158.00
Current: 171.470
Low
114.00
Averages
132.17
High
158.00
About XOM
Exxon Mobil Corporation is an energy provider and chemical manufacturer. The Company’s principal business involves exploration for, and production of, crude oil and natural gas; the manufacture, trade, transport and sale of crude oil, natural gas, petroleum products, petrochemicals and a wide variety of specialty products; and pursuit of lower-emission and other new business opportunities, including carbon capture and storage, hydrogen, lower-emission fuels, Proxxima systems, carbon materials, and lithium. Its Upstream segment explores for and produces crude oil and natural gas. The Energy Products, Chemical Products, and Specialty Products segments manufacture and sell petroleum products and petrochemicals. Energy Products segment includes fuels, aromatics, and catalysts and licensing. Chemical Products segment consists of olefins, polyolefins, and intermediates. Specialty Products segment includes finished lubricants, basestocks and waxes, synthetics, and elastomers and resins.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Strategic Importance: Following damage to Qatar's Ras Laffan facility due to Iranian strikes, this facility is poised to become a critical source of supply, further solidifying the U.S. position in the global energy supply chain.
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- LNG Production Commencement: The Golden Pass joint venture between Exxon Mobil and QatarEnergy has started production at its Texas facility, marking a significant milestone for one of the largest U.S. export projects, with the first cargo expected in Q2.
- Capacity Expansion: The initial production unit will add 6 million metric tons per year of LNG capacity, and once fully operational, the facility will produce 18 million metric tons annually, significantly enhancing U.S. supply capabilities in the global energy market.
- Strategic Importance: Following damage to Qatar's Ras Laffan facility due to Iranian strikes, this facility is poised to become a critical source of supply, further solidifying the U.S. position in the global energy supply chain.
- Investment Context: The Golden Pass project, with a total investment of $10 billion, sees QatarEnergy holding a 70% stake and Exxon Mobil a 30% stake; despite facing delays and cost overruns since its 2019 inception, the project's launch underscores its strategic significance.
See More
Crude Oil Prices Surge Amid Middle East Tensions
- Oil Price Surge: Brent crude for June delivery rose 1.5% to $105.56 per barrel, with March prices soaring over 60%, marking the largest monthly rally since 1988, indicating market sensitivity to Middle Eastern tensions.
- Strong U.S. Crude Performance: U.S. crude for May also increased by 1.5% to $102.92 per barrel, with a 51% rise in March, representing the best performance since May 2020, reflecting concerns over supply disruptions.
- Escalating Geopolitical Risks: Iranian drones targeted fuel tanks at Kuwait International Airport, causing a massive fire and exacerbating global economic fears over reliance on Middle Eastern oil, especially with shipments through the Strait of Hormuz nearly halted.
- Trump's Withdrawal Statement: Trump indicated that U.S. forces are expected to leave Iran in two to three weeks, dismissing the need for a negotiated deal to end the conflict, which could lead to further oil price volatility and impact global market stability.
See More
Trump Signs Executive Order Amid Iran Conflict Hopes
- Market Rally: Wall Street experienced a significant rally on Tuesday due to renewed optimism regarding a potential resolution to the U.S.-Iran conflict, with all three major indexes posting their best day since May; the Dow surged over 1,100 points, the S&P 500 rose 2.91% to 6,528.52, and the Nasdaq Composite climbed 3.83% to 21,590.63, indicating strong investor sentiment.
- Trump's Upcoming Address: The White House announced that President Trump will deliver an important address regarding Iran on Wednesday at 9 p.m. ET, which is expected to further influence market sentiment, especially as he indicated that U.S. military forces might leave Iran in “two to three weeks,” potentially sustaining the current optimism.
- Oil Price Fluctuations: Brent crude prices remained elevated following Iran's attack on a Kuwaiti oil tanker near Dubai, with partial closures of the Strait of Hormuz impacting global supply chains, particularly in the oil sector, highlighting the ongoing geopolitical risks affecting energy markets.
- Tech Stock Movements: OpenAI announced it closed a record-breaking funding round, valuing the company at $852 billion with $122 billion in committed capital, reflecting strong investor interest in the AI sector, while Oracle began layoffs in response to plummeting stock prices, illustrating the uncertainty within the tech industry amid current market conditions.
See More
Chevron and Exxon Outlook Positive Amid High Oil Prices
- Oil Prices and Profitability: Although crude oil prices retreated by 1%, they remain above $100 per barrel, providing Chevron and Exxon with superior operating leverage, which is expected to drive higher profit growth in 2025.
- Strategic Investments and Market Expansion: Chevron's acquisition of Hess Corporation grants it a 30% stake in the Stabroek Block offshore Guyana, further solidifying its strategic position in the global energy market, while expanding its operations in the Leviathan gas field in the Mediterranean enhances revenue diversity.
- Cash Flow and Shareholder Returns: Following its acquisition of Pioneer Natural Resources in 2024, Exxon has become the largest producer in the U.S. Permian Basin, returning over $37.2 billion to shareholders last year, including $17.2 billion in dividends and $20 billion in share repurchases, showcasing strong cash flow and asset coverage.
- Market Outlook and Investment Appeal: With both Chevron and Exxon's breakeven levels below $50 per barrel, the current oil prices significantly boost their cash flows, making these major oil stocks attractive to long-term investors despite ongoing tensions in the Middle East.
See More
Asia-Pacific Markets Rebound on U.S.-Iran War Hopes
- Market Rebound: Asia-Pacific markets rebounded following U.S. President Trump's statements suggesting a potential end to the Iran war, with South Korea's KOSPI surging nearly 5% in early trading, reflecting investor optimism about improving geopolitical conditions.
- Export Surge: South Korea's exports soared 48.3% year-on-year in March, significantly exceeding Reuters poll estimates of 44.9%, providing strong support for the market and indicating a recovery in global demand.
- Japanese Business Confidence: Business sentiment among large Japanese manufacturers rose from 15 to 17, surpassing economists' expectations of 16, indicating a growing optimism about the economic outlook and reaching the highest level since Q4 2021.
- Australian Market Gains: The S&P/ASX 200 index in Australia increased by 1.76%, driven by a rise in educational services stocks, suggesting that strong performance in this sector positively influenced overall market sentiment.
See More
US Stocks Surge on Hopes for End to Iran War
- Market Rally: The S&P 500 index rose by 2.91%, the Dow Jones Industrial Average by 2.49%, and the Nasdaq 100 by 3.43%, reflecting market optimism regarding the potential end of the Iran war, which could lower energy prices and ease inflation concerns.
- Consumer Confidence Boost: The US March consumer confidence index unexpectedly increased by 0.8 to 91.8, surpassing the anticipated decline to 87.9, indicating a strengthening consumer outlook that may drive spending and economic growth.
- Strength in China: China's March manufacturing PMI rose to 50.4, better than the expected 50.1, signaling signs of economic recovery that could positively impact global growth prospects and further support US stock performance.
- Falling Bond Yields: The 10-year Treasury note yield dropped to 4.28%, a one-week low, reflecting reduced inflation worries, which may provide support for the stock market and enhance investor interest in equities.
See More
