Times are slowly but surely changing in the oil and gas industry, according to Moody’s 2018 outlook. The oil and gas industry will continue its gradual recovery as upstream companies increase production, helping the midstream and services businesses as well.

With no doubt, it’s been a tough three years for the industry, which has been wracked by lower oil prices, a raft of bankruptcies and a lack of investor confidence. According to a recent Fidelity Investments report, oil and gas equipment, stocks of oil and gas explorers and producers, and services providers and oil and gas drillers were among the eight worst performing sectors last year. However, analysts at RBC Capital Markets, which is known for its oil and gas coverage, claim that the energy cycle has now hit its low point and is entering the second full year of recovery.

When the crude oil export ban lifted at the beginning of 2016, many viewed it as a great thing for the industry and free trade, but they were not sure about its future impact. In 2017 the U.S. confirmed its growing status as an energy exporter. Some saw the countries newfound energy strength as allowing them to go further down an isolationist track as it has always sought the dream of energy independence. Another view was that its strength as an energy supplier is just giving the country more leverage in the global, free trade market that it has historically supported. Although still a net importer of crude, The U.S.’ growing position as an energy exporter and low-cost supplier could fundamentally change the status of the global energy landscape in the years to come.

RBC Capital Markets has stated that global inventories are dropping, and oil prices have now begun to respond to tightening supply-demand. The analysts think exploration and production money flow globally will continue to skew to North America, especially West Texas’ and New Mexico’s Permian Basin, although they are starting to see oil companies dust off their international and offshore projects as well. All in all, excess supply will continue discouraging oil prices in the next two years. On the other hand, natural gas prices will likely benefit from higher demand.

Perspectives on the Sub-sectors of the Oil and Gas Sector

Analysts at RBC Capital Markets provided with some perspectives on some of the sub-sectors of the industry. For integrated oil companies, they see the real challenge as sustaining control on costs while boosting distributions to shareholders.

The company also sees improving investor sentiment for U.S. exploration and production companies as oil prices firm. It’s anticipating that cash flow per share in the sub-sector will plummet by 30%, debt-adjusted production will increase by 20%, and spending grows by 11%.

For global oilfield services companies, it is expected for stocks to shift course and produce positive returns this year with another year of equipment attrition, capacity absorption, and lower global oil inventories.

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