Stocks throughout the energy sector rose on Tuesday. Shares of liquified natural gas (LNG) tanker company Golar LNG (NASDAQ:GLNG) gained as much as 10.5% today, while the stock of large and diversified exploration and production company Occidental Petroleum (NYSE:OXY) was up 13.5% at its highs. The tiny driller SM Energy (NYSE:SM) saw its shares peak at roughly 10%. Drilling services company Core Laboratories (NYSE:CLB) hit a high of nearly 9%, and U.S. midstream energy giant Enterprise Products Partners (NYSE:EPD) had a gain of nearly 5% at one point in early trading.
By roughly 2 p.m. EST on Tuesday, all of these energy industry stocks were off of their highs. But each was still holding on to at least some portion of its gains. Golar was up 8.5%, Occidental 12%, SM Energy 8.5%, Core Labs 7%, and Enterprise 4%. The big story is the same across all of the companies, but there are important nuances to consider.
All of these energy companies are, in some way, affected by the prices of oil and natural gas. And the simple reason for the price gains for each of the stocks is that prices of those two commodities were higher today.
That, however, is just the surface view. A key driver was a spike of cold weather in Asia that left LNG inventories low. Traders in the region were forced to scramble to find additional LNG, pushing the price of the fuel up dramatically in Asia. That had ripple effects through the global energy sector.
For example, Golar provides the tankers that help move LNG around the world. With a sudden spike in demand, the prices being paid to transport it have also increased dramatically. That's great news for tanker owners. Thus, investors bid the price of the Golar up accordingly.
Enterprise is one of the largest midstream companies in North America and is a key player in moving U.S. natural gas. So if demand is strong overseas, investors are likely extrapolating that growth in the U.S. midstream industry may not be as moribund in the face of the coronavirus pandemic. Indeed, the U.S. would be happy to send its natural gas anywhere in the world, for the right price -- a good reason to bid the master limited partnership's units higher.
Core Labs, meanwhile, provides well enhancement services to exploration and production companies. When energy prices are low, drillers pull back; when prices are high, they tend to increase capital spending. With energy prices moving up, investors see a brighter future for Core Labs, so its stock logically rose.
Exploration and production names Occidental and SM Energy, where energy prices are the direct determinant of their top and bottom lines, are obvious beneficiaries of higher energy prices. That said, you can't paint the industry with a single brush. Occidental has been struggling under the weight of a 2019 debt-funded acquisition made at what now appears to be too dear a price. Higher energy prices will make it that much easier to deal with its ill-timed purchase.
SM Energy, meanwhile, is a relatively small industry player with a heavily leveraged balance sheet (its financial-debt-to-equity is a troubling 12 times). Rising oil and gas prices should help it muddle through the current industry downturn.
When you step back and look at each of the names on this list of energy companies that were on the rise today, you start to see the nuances that are hidden underneath the big story. But that big story also has some importance. The economic shutdowns to slow the spread of the coronavirus resulted in a massive decline in demand, pushing supply and demand deeply out of balance. Energy prices plunged, as you would expect.
But the industry has been trying to readjust, just like it always does during such headwinds. And now, a cold snap in Asia has quickly resulted in a shortage of liquified natural gas. The energy sector has historically been cyclical and, perhaps, this situation is an early sign that the global pandemic hasn't actually altered that trend, even if it did exacerbate the downturn this time around.