Is Energy’s Outperformance Sustainable? Part 1
Investors have been questioning whether the two-year trend of outperformance in the energy sector is nearing its end. Despite the highest average commodity price environment in a decade, capital investment remains at decade lows as the typical response to the supply ‘price signal’ breaks down.
A variety of factors are inhibiting the sector’s ability and/or willingness to respond to commodity price strength with higher levels of capital investment - a decade of low returns, lack of capital availability, low company valuations and correspondingly restructured management incentives.
In this three-part series, we will explain why we believe this underinvestment could lead to a more structural shortage of commodity supply growth, potentially providing for a prolonged period of commodity price strength, higher company returns on invested capital and ultimately, sustained energy outperformance.
