.webp)
Apologies for the slow delivery of this November recap. It was a decent month, with energy generally outperforming the broad market. The S&P 500 gained +0.3% (YTD +17.8%), while the Nasdaq Composite fell -1.5% (YTD +21.7%). The diversified energy sector gained +2.9% (S&P 1500 Energy, S15ENRS), with subsector performance as follows: Midstream +6.2% (AMZ), Upstream +5.7% (XOP), and Oilfield Services +2.1% (OIH). Clean energy took a break in November at -1.8% (ICLN). Front-month WTI closed the month at $58.55/bbl, a decline of -3.8%. Natural gas took another step up at +17.6%, increasing from approximately $4.1/mmbtu to $4.85/mmbtu1.
Several consistent 2025 themes continued to play out in November.
Consolidation
SM Energy (SM) and Civitas (CIVI) announced they would tie the knot, ending months-long speculation about who would be CIVI’s dance partner. Ovintiv also continued its expansion in Canada, announcing the acquisition of NuVista (NVA CN). The quest for inventory, size, scale, and value marches ahead. There will be more.
Geopolitical
During November, a renewed push by the US for peace between Russia and Ukraine captured center stage. Both sides increased aggression and attacks on energy infrastructure to bolster bargaining positions, with oil markets focused on the “risk” of potential peace and more Russian volumes, a concern we believe is overstated. December brought another front of conflict, as the US took control of several sanctioned Venezuelan oil tankers. Squeezing the checkbook of Venezuela’s Maduro is textbook strategy, with the longer-term side benefit of regime change for the Trump Administration being likely Western capital investment and, eventually, higher Venezuelan oil production.
Energy macro
OPEC+ finally slowed its return of production, pausing further increases while it assesses the health of the oil market. Newsflash, the patient is sick. WTI oil dipped into the mid-$50s during December as Chinese buyers slowed purchases and oil in transport reached record high levels. There are only two realistic relief valves to the current market: less OPEC+ supply or less US shale production. Apparently, both need even lower prices to be catalyzed. JP Morgan research recently highlighted the potential for WTI oil to trade into the $40s. We don’t like that number. We hate that number. But that might be what it takes for supply brakes to be applied. A ripped-off Band-Aid with near-term price pain might ultimately feel better than a longer-lasting $60/bbl purgatory environment.
Reinforcing the age-old adage that weather matters, natural gas had an upside rip during November and early December, peaking at approximately $5.50/mmbtu. Gas bulls were euphoric and enjoying a victory lap, but the weather gods smote them quickly. Warmer forecasts took gas below $4/mmbtu within weeks. The current NYMEX 2026 calendar strip is approximately $3.75/mmbtu. We take the over.
One other notable November event is worth mentioning. Private company Continental Resources took a 90% working interest in a Pluspetrol block in Argentina’s Vaca Muerta shale play. As US shale matures, over the next three to five years we expect an expansion of activity in conventional, offshore, and international plays. Argentina is an area to watch, as the country has become more investable, the play is similar to the US shale model, and existing players are open to foreign partners.
Despite softer oil prices, energy stocks outperformed the S&P 500 in November by approximately 260 basis points as the AI rally faltered and investors rotated. We would like to believe that energy stocks are a coiled spring that has already fully reflected the risks in the crude market. Unfortunately, that would be our hearts talking, not our heads. We suspect the oil-related spring has further to coil and that we will find the bottom in 2026. The risk-reward in gassy equities remains more attractive.
As always, we welcome your questions and comments.
(1) Source: Bloomberg
The above information does not constitute investment advice. Please note that these unaudited estimates have been prepared in accordance with our typical procedures for estimates and as such, final month-end prices may not have been received for all positions. Performance for all strategies is net of fees. Returns have been adjusted where applicable to reflect the highest level of fees available. The PEP Energy Equity Opportunities strategy performance is that of an investor invested in the USD share class of the one-year tranche. The performance calculation assumes that the investor’s account participated fully, on an applicable pro forma basis, in all investments, and was assessed a 1% management fee and 10% incentive fee. Additionally, the performance calculation assumes that all investors were given the same economic terms with respect to their investment. From Inception (May 1, 2022) the performance of the PEP TE&M Opportunities Fund is calculated pro forma to represent the highest fee level offered for the strategy. The performance calculation assumes that the investor’s account participated fully, on an applicable pro forma basis, in all investments, and was assessed a 1.5% management fee and 20% incentive fee subject to high water mark. Additionally, the performance calculation assumes that all investors were given the same economic terms with respect to their investment. Individual investors’ returns will vary from the strategy returns due to the timing of subscriptions and redemptions. Indexes are unmanaged and have no fees or expenses. An investment cannot be made directly in an index. The strategies represented consist of securities which may vary significantly from those in the indices listed in the Estimated Net Performance Benchmark chart, and performance calculation methods may not be entirely comparable. Accordingly, comparing results shown to those of the aforementioned indices may be of limited use. Please refer to fund documents for terms and appropriate risk disclosures. As a reminder, please note that the information provided is confidential and should not be forwarded or distributed by any recipient. If you would like to add someone to the distribution list or have any questions, please feel free to contact us at ClientServices@PickeringEnergyPartners.com.
