Equity Analyst Sector: Oil Gas and Commodity, Thoughts?
So I had an interview for the Junior Equity analyst position, turns out each analyst is assigned one or two sectors from the start
I think the head of research and head of HR like me enough BUT the problem is the available slot right now is to cover Oil & Gas and Commodity
I think these 2 sectors are the least appealing sector for me, because to my knowledge:
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Very cyclical with a long period of low interest in this field when oil & commodity price is low, so as an analyst in this sector, I think there will be a long period of hibernation work
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The modeling and valuation will be highly dependent on oil& gas and commodity price, so if we can predict the price, why not directly play with the commodity contract right?
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With solar & electric vehicles on the way, the oil industry doesn’t seem to have a bright future
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Most of these producers are in remote areas, so site visit doesn’t seem appealing to me
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Moving sector coverage doesn't seem easy, so 1st sector covered will be important determinant of career progress
Any thoughts and suggestions?
Note: I'm most interested in the financials sector
Well, you don't have other options at least at this firm. You can go interview at another shop, but roles don't open up all the time. Yes, these two sectors are not that appealing.
#2 is a fair point, but during the commodity upcycle the inherent operating leverage gives the commodity companies enormous cash flow generation that you don't get with direct exposure to the commodity itself. So it's not the same play. Yes, ultimately it's still cyclical but some commodities have secular tailwinds due to rising intensity on the demand side while new supply will take decades to come online, driving sustainable pricing uplift.
Thank you for the input
I’m receiving many input why to go for it on Reddit, and it does seem like a good learning opportunity, but my guts are still not excited about it.
I used to buy a book about energy and ends up not reading it at all
More factors matter in deciding whether to join a team / firm. I have written about it before. Please take a look: Deciding on your next sell-side research job
thank you for sharing your article, especially on the financials' statement. Regarding Oil gas and commodity, beside no 2, what's your opinion on my points 1,3,4,5 above? (agree/disagree and why)
1. Commodity price is high now, that motivates more activities and need for more capital, hibernation might be over
3. True, but the oil will be around for longer than people expect. Lots of the clean energy value chain relies on carbon.
4. Agreed.
5. Yes, that's true.
Thank you for the confirmation
It is common to believe that oil and gas sector does not have a bright future - especially due to significant capital flowing into renewables and accelerating sustainable technologies, government supporting renewables projects and pretty much all countries across the globe have net zero emissions target. But keep in mind that oil and gas companies will be sustainable long term as they are adopting renewables and sustainable technologies (ccus, ev infra, blue/green hydrogen). Also gasoline demand will decrease overtime, but heavy distillates and jet fuel or kerosene will be around a long time…
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