A rough month.  Energy was the worst subsector in an incredibly choppy market during April on a combination of “Liberation Day” tariff/economy concerns and the prospect of rising OPEC+ volumes.  The S&P500 fell -0.7%, the Nasdaq gained +0.9%, while Diversified Energy dropped -13.8% (S&P 1500 Energy, S15ENRS) as YTD gains were erased.  April’s energy subsector performance was as follows: Midstream -8.8% (AMZ), Upstream -15.9% (XOP), Oilfield Services -20.2% (OIH) and Clean Energy as the standout at +3.1% (ICLN).  Front month WTI oil fell notably, dropping -19% (from ~$71.50/bbl to ~$58.20/bbl) and Henry Hub reversed course, also falling -19% to close at ~$3.35/mmbtu.⁽¹⁾  

ENERGY MACRO

• During April, crude fell precipitously in reaction to the double whammy of tariffs and accelerated OPEC+ supply increases.  From ~$71.50/bbl at the end of March, front monthWTI briefly traded as low as ~$55/bbl, before bouncing as high as ~$65/bbl and eventually finishing April at ~$58.20/bbl. 
• Although tariff dynamics seem to be generally moderating from initially extreme levels, it is important to remember that oil markets are not just faced with tariff-related demand risks.  OPEC+ has announced meaningful supply additions into an already-skewed-toward-oversupply market.  Inventories will absorb some of OPEC+’s extra barrels, but if the cartel keeps coming, prices will have to fall enough to incentivize/force lower production from existing players.
• OPEC+ will meet again May 5th to discuss its path forward.  Tensions are high, as Kazakhstan continues to overproduce dramatically and the rumor mill indicates another “production acceleration” could be possible for June.  This would mean bringing on more than the targeted monthly ~140kbopd increment of production.  Ugly if it happens.   
• Volume reductions from US sanctions on Iran would appear to be the only potential near-term relief to oversupplied oil markets.  This seems to hinge on the status of ongoing nuclear talks between the two countries.  Foreign policy bingo, anyone? 
• We continue to feel the risk/reward in oil markets is skewed to the downside and expect WTI to spend more time in the $50’s than the $60’s through the remainder of the year.  This is certainly one prognostication where we’d be happy to be wrong!
• Natural gas was not immune to April’s volatility.  Front month NYMEX gas was over $4/mmbtu at the beginning of the month, spent some time briefly under $3/mmbtu and closed at ~$3.35/mmbtu (-19% m/m) as 1) the market started to worry that a trade war with China could impact LNG volumes and 2) gas storage levels loosened vs. historical averages.  Longer term gas was less impacted with NYMEX Calendar 2026 and 2027 dropping -4.9%(~$4.20/mmbtu) and -1.3% (~$3.85/mmbtu), respectively. 

INDUSTRY DYNAMICS

• Lower commodity prices, potential tariff impacts and falling stock prices have energy industry executives both dismayed and incrementally cautious.  Private upstream operatorsappear to be reacting most quickly to the $10+/bbl drop in oil prices, with a few indicating they will release drilling rigs after current wells are completed and defer completions (DUC).  Public companies are mostly taking a wait-and-see approach to capital spending plans, although Matador Resources announced it would drop a rig in the Permian in June and reallocate capital to share repurchase.
• We are strong advocates of share repurchase for energy companies with already-strong balance sheets and stocks trading at substantial discounts to NAV (with NAV determined at $60/bbl and gas at $3/mcf).  This will make increasing sense as/when/if oil prices trade in the $50’s (and stocks trade at/below current prices).  Hats off to Permian producer Diamondback Energy, pre-announcing Q1 operating metrics so it could take advantage of share price weakness to buy back shares. 
• The Big Three OFS companies (Schlumberger, Halliburton and Baker Hughes) kicked off Q1 earnings season with disappointing results.  Reflecting the uncertain environment for both tariffs and drilling activity, guidance was generally lowered.  Sellside analysts have begun the process of lowering forward estimates.  Typically, in an industry slowdown, the first earnings revisions are never cautious/deep enough.  The one-day reaction to HAL, BKR and SLB results were -5.6%, -6.4% and -1.2%, respectively.  We will be watching for the point in time when OFS stocks ignore bad news. 
• For the past several years, readers of this commentary have seen a steady stream of discussion regarding monthly M&A announcements.  We expect a 6-12 month hiatus from sizeable deals while companies assess the macro and wait for bid-ask equilibrium to emerge.  At these levels, stock-for-stock combinations will likely be the deal structure of choice as sellers won’t want to “cash out” at low prices.

ENERGY EQUITIES

Not a lot to say.  For the year, on a total return basis (price + dividends), energy indices are now between +2.6% (Midstream) to -22.9% (Oilfield Service).  Many stocks are off 30%+.  As of the end of April 2025, the upstream ETF we watch (XOP), has bounced +8.6% from the low.  For comparison, the S&P’s move off the bottom is +11.8%.  Q1 earnings calls will provide an overall view of how the industry plans to navigate the forward environment.  That will be helpful information for investors.  Overall, energy stocks are inexpensive on both cash flow and asset value metrics, but susceptible to further weakness on an oil move into the $50’s.  We remain slow and steady acquirers and expect our bullishness to increase with either elapsed time or lower stock prices.