In October 2019, the U.S. Energy Information Administration (EIA) lowered its oil demand forecast for 2020, projecting Brent crude oil spot prices will average $57 per barrel by the second quarter of 2020, a full $5 per barrel lower than its previous forecast of September 2019. Brent spot prices temporarily surged to $68 per barrel in September after drone attacks on oil processing facilities in Saudi Arabia disrupted production. However, within a few weeks, prices fell back to $58 per barrel after the oil processing company, Saudi Aramco Abqaiq, restored production.

Downward Oil Price Pressures Predicted for 2020

The EIA expects downward oil price pressures going into 2020 as global oil markets react to rising inventory levels. Despite the risk of future oil supply disruptions, the EIA forecasts this risk will be more than offset by uncertainties in global economic conditions and lower oil growth demand in the coming year.

The EIA's expectation for lower oil demand is bolstered by an October 2019 report from the Organization of the Petroleum Exporting Countries (OPEC), which forecasts reduced oil demand growth for a third consecutive month. These forecasts come on the heels of continued uncertainty regarding the U.S.-China trade war, which is cited as another reason for decreased oil demand expectations.

5 Energy Stocks Poised to Thrive in All Markets

Given the lowered oil demand expectations for 2020, energy stock investors would do well to look for companies that have diversified assets or a competitive advantage that will help them do well regardless of the price of oil.

The below five public companies show promise for growth, based on quarterly income growth and revenue momentum. In addition, some of these companies have made significant moves to acquire assets that can produce profits going forward. And some companies offer investors a healthy dividend, which can help offset fluctuations in share prices we might see in the coming year. All figures are current as of October 30, 2019.

Key Takeaways

  • The U.S. Energy Information Administration (EIA) forecasts downward oil price pressures going into 2020, citing rising oil inventories and uncertain global economic growth.
  • As of October 2019, the EIA forecasts Brent spot oil prices will average $60 per barrel for 2020, $2 per barrel lower than its previous forecast. 
  • Investors looking for energy stock investments would do well to focus on top performers positioned to outperform in both up and down markets.
  • Here are five top projected energy performers for 2020:
  1. EOG Resources (EOG), premium site driller.
  2. Royal Dutch Shell (RDS-B), oil behemoth.
  3. Enbridge Inc. (ENB), a pipeline company.
  4. NextEra Energy, Inc. (NEE), renewable electricity.
  5. Enterprise Products Partners L.P. (EPD), midstream energy services. 

1. EOG Resources Inc.

EOG Resources Inc. (EOG) has taken a unique stance. The company focuses on premium sites, meaning sites that are highly productive while costing less to operate. EOG looks for sites that can provide a 30% after-tax real rate of return. While the bulk of its operations are set in Texas, the company has diversified into other regions around the world, actively exploring and/or drilling in British Columbia, the island of Trinidad, and the Sichuan Basin in China.

With a market capitalization of $40.4 billion, EOG is one of the largest oil and exploration companies in the United States. The company's shares have been beaten down the past year, dropping at one point about 40% year-over-year, impacted by the decline in oil prices, which plummeted the third quarter of 2018. However, management has spent the past five years improving efficiencies, working to build a company that can operate profitably even with the expectation of lower oil prices. It currently pays a dividend of 1.60%, but the play here is for growth.

2. Royal Dutch Shell PLC

Royal Dutch Shell (RDS.B) is a blue-chip oil company that prides itself on paying a consistent dividend. It rewards its shareholders with a 6.3% dividend, one of the biggest of all the major oil companies.

Over the past year, many of the big oil companies saw their share prices punished as oil prices declined and net incomes took a significant hit. For a time, it looked like Shell would come away unscathed; the company posted impressive earnings for both the fourth quarter of 2018 and the first quarter of 2019. But that changed in the second quarter of 2019 when the company reported a year-over-year earnings drop of 50%. The announcement hit the stock hard, with share prices falling about 14% during the month of August.

Despite the major earnings miss, the company's cash flow was up 16% year-over-year, more than enough to cover its dividends. And while other oil companies were forced to cut their dividends during the oil downturn, Shell has held steady to its commitment to its shareholders. Another plus is the company has a reputation for good management and has been able to keep its debt levels low. While the stock may require a bit more risk tolerance, it could be a good long-term play for dividend investors focused on a top-notch yield from a consistent payer.

The company has two classes of American depositary receipt (ADR) shares—class A shares and class B shares—both of which trade on the New York Stock Exchange. Be aware cash dividends on A shares are subject to the deduction of a Dutch dividend withholding tax at the rate of 15%.

3. Enbridge Inc. 

Enbridge Inc. (ENB) is not an oil driller. The Canadian energy giant—which has a market capitalization of $74 billion—is a pipeline company, servicing contracts to transport crude oil and natural gas via its vast network. Because its business is pipelines, it receives its fees regardless of whether gas and oil prices are soaring or plummeting. Plus, the company has diversified into other sectors, most notably renewable energy, such as solar, wind, geothermal, and waste heat recovery operations.

Its merger with Spectra Energy (SE) in 2016 made Enbridge the biggest oil infrastructure company not just in the United States, but in all of North America. With a 6.06% dividend yield, this stock could provide both growth and income.

4. NextEra Energy, Inc.

NextEra Energy, Inc. (NEE) is a renewable energy company that generates, distributes, and sells electric power to its retail and wholesale customers in North America. The utility company has invested heavily in developing clean energy projects using both wind and solar power, and its investments are paying off.

Demand for the company's clean energy has been high and new projects that have recently come online have added to its increasing revenue. For the third quarter of 2019, the company posted adjusted earnings of $1.2 billion, a year-over-year increase of 12%. The company is one of the fastest-growing in the utility sector, and this growth should continue as it has a backlog of projects from other utilities eager to buy from and partner with NextEra. As an added bonus, the company announced its intention to increase its dividend payouts by 12% to 14% in 2020.

5. Enterprise Products Partners LP  

Enterprise Products Partners (EPD) stands out as a top company in the midstream space. The company provides services to the natural gas, crude oil, and petrochemicals industries, operating over 19,000 miles of natural gas liquids pipelines and 5,300 miles of crude oil pipelines.

One of Enterprise's biggest selling points is its ability to generate a substantial cash flow—$1.6 billion for the third quarter of 2019. The company recently signed long-term contracts with Chevron to build and support a new oil terminal off the coast of Texas. In total, the company reported $9.1 billion of growth capital projects under construction and scheduled to come online by the end of 2023.

Impressive numbers like these help the company richly reward its investors with a solid 6.6% dividend. Because the company is a master limited partnership, investors can enjoy the added tax advantages Enterprise offers.

The Bottom Line

Choosing the top five stocks in energy involves looking at more than past history. It is also critical to review how a company is positioning its business to grow and thrive regardless of where oil prices are headed. The most profitable approach may be to create an energy portfolio that is diversified in a similar manner to this list. This group offers onshore drilling, offshore drilling, renewable energy, and infrastructure as a way to profit from energy in 2020.

If the EIA is correct, oil prices could continue to be impacted by decreasing demand and uncertain global economic conditions. Energy stocks could be in for a bumpy ride, but certain companies are poised to weather the storm better than others. Investors with a long-term investment horizon can also view this as an opportunity to pick up some solid plays now at bargain prices.