The Gas Surge Outshines Oil: Why Expand Energy is Upgraded While Murphy Oil Faces Headwinds

The energy sector is once again a battleground of diverging fortunes. Keybanc Capital Markets recently upgraded Expand Energy to "Overweight," while downgrading Murphy Oil to "Underweight"—a stark reflection of shifting dynamics between natural gas and crude oil markets. As global demand patterns and geopolitical factors reshape the energy landscape, investors must ask: Why is gas outperforming oil, and what does this mean for these companies?

The Gas Market’s Momentum

Natural gas has emerged as the beneficiary of a trifecta of trends: industrial demand resilience, LNG export growth, and a renewed focus on cleaner energy. With global LNG trade volumes hitting record highs in 2023,

, gas has become a critical bridge fuel in decarbonization efforts. Meanwhile, oil demand faces headwinds from electric vehicle adoption and refining overcapacity.

This chart reveals gas prices rising by 22% year-to-date, while oil has stagnated. The gas-to-oil price ratio, once a stable 1:50, now hovers near 1:30—a clear advantage for gas-heavy players.

Expand Energy: Positioning for Gas Dominance

Expand Energy, a mid-cap producer with 80% of its reserves in natural gas, has leveraged this shift. Its operations in the Appalachian Basin and Haynesville Shale—two of the most prolific gas plays in the U.S.—position it to capitalize on robust LNG demand. Analysts at Keybanc note Expand’s ability to generate free cash flow at gas prices below $3/MMBtu, a threshold now comfortably breached.

The company’s stock has already risen 35% YTD, but Keybanc argues this is just the beginning. With a price target raised to $55 (from $42), the firm cites a 15% upside potential, assuming gas prices hold above $3.50/MMBtu through 2024.

Murphy Oil: The Oil Overhang

Murphy Oil, by contrast, remains tethered to a struggling oil market. Its portfolio, heavy in offshore crude production, faces dual pressures: stagnant Brent prices (currently $80/barrel, down 12% from early 2023 highs) and rising production costs. Keybanc’s downgrade reflects concerns over the company’s debt-laden balance sheet and limited exposure to gas.

This comparison shows Murphy underperforming the index by 20 percentage points since Q1 2023, as its focus on oil-heavy assets has amplified volatility. The firm’s 2024 earnings outlook, dependent on $85/barrel oil, now appears overly optimistic given current supply dynamics.

The Broader Energy Divide

The divergence between gas and oil is no accident. While oil faces a supply glut from OPEC+ production cuts and U.S. shale’s rapid ramp-ups, gas demand is being bolstered by:
1. Industrial recovery: Steel and chemicals sectors in Asia are driving incremental gas use.
2. LNG infrastructure: $100 billion in new liquefaction projects will come online by 2025, per Rystad Energy.
3. Policy tailwinds: The EU’s Fit for 55 plan prioritizes gas over coal in interim energy mixes.

In contrast, oil demand growth is capped by EV adoption (projected to claim 14% of passenger vehicle sales by 2030) and refining bottlenecks in mature markets.

Conclusion: Gas is the New Growth Catalyst

Keybanc’s actions underscore a clear thesis: gas is the energy sector’s growth engine for the next decade. Expand Energy’s focus on low-cost gas production and export-ready infrastructure positions it to outperform, while Murphy Oil’s oil-heavy portfolio leaves it vulnerable to price volatility and structural shifts.

Investors should prioritize firms with gas exposure and robust balance sheets. Expand’s valuation—trading at 3.5x EV/EBITDA versus Murphy’s 4.8x—reflects this premium. Meanwhile, Murphy’s stock, down 18% year-to-date, may face further pressure unless it pivots toward gas assets or reduces leverage.

The data is clear: in an energy market bifurcated by demand and policy, gas is king. Those who ignore this shift risk being left behind.