Since The Energy Strategist launched in 2005, the first issue of the new year traditionally has looked forward to what investors should expect in the coming year. My annual outlook focuses on five areas: the global economy, US equities, oil prices, coal prices and natural gas prices.

I also make a point of reviewing my major calls from the prior year–the successes, as well as the mistakes and missed opportunities.

Investors who refuse to admit their errors, evaluate what went wrong and adjust their strategy accordingly are doomed to failure in the long run. Any analyst, pundit or investor who claims to be 100 percent accurate in predicting market moves and trends in individual stocks is either delusional or an outright liar.

It’s often said that a good forecaster makes predictions early and often. There’s a kernel of truth to this maxim: Market and economic conditions change constantly, so any long-term predictions must also evolve to reflect emerging developments.

Here’s a quick synopsis of my outlook for the coming year.

• Global Economy: I’m cautiously bullish on global economic growth, despite the challenges in Europe. The US economy should expand by 2 percent to 3 percent in 2012, though this growth will be lumpy.
  
  
• Equities: I’m also cautiously bullish on US equities in the first half of the year. However, a contentious election season and uncertainty about potential tax increases will be headwinds in the back half of 2012. Investors should gird their portfolios for volatility.
  
  
• Oil Prices: Brent crude oil should continue to command a premium of roughly $10 per barrel to West Texas Intermediate (WTI) crude oil. Both benchmarks should hover around $100 per barrel to $110 per barrel for much of the year, but tight supply-demand conditions mean that Brent and WTI should retest their respective 2011 highs in the coming year.
  
  
• Natural Gas Prices: Natural gas prices will remain depressed in North America, but the price outlook is much more sanguine in Asia because of elevated demand in Japan and growing imports in China.
  
  
• Coal Prices: Supply and demand conditions remain strong in the market for seaborne thermal and metallurgical coal, though investor sentiment toward the industry remains negative–largely because of concerns about China’s economic growth. We expect China to grow its gross domestic product at a sustainable rate in 2012, which should buoy coal prices.

The Energy Strategist’s 2012 outlook isn’t carved in stone; I will modify my forecast and strategy to reflect new developments in the economy and stock market.

Investors should also be ready to respond rationally to any unforeseen events that might transpire. Although the 2010 oil spill in the Gulf of Mexico and the earthquake that devastated Japan’s Tohoku region in March 2011 also wreaked havoc on some energy stocks, nimble investors were able to take advantage of the resultant opportunities. 

In This Issue

The Stories

1. Although we remain cautiously bullish on US equity markets, energy stocks and the economy, the new year should bring its fair share of volatility, particularly in the back half of the year. See A Sentimental Education: The Stock Market and Economy, 2011-2012.

2. Elliott revisits his 2011 outlook for crude oil, natural gas and coal markets and highlights Portfolio holdings that will benefit from his 2012 forecast. See Commodity Markets and Energy Stocks: 2011 Review and 2012 outlook.

The Stocks

ExxonMobil Corp (NYSE: XOM)–SELL for 17.7% Gain
Chevron Corp (NYSE: CVX)–Buy < 105 in Conservative Portfolio
Eni (Milan: ENI, NYS: E)–Buy < USD52 in Conservative Portfolio
Enterprise Products Partners LP (NYSE: EPD)–Take Some Profits, Buy < 45 in Conservative Portfolio
Sunoco Logistics Partners LP (NYSE: SXL)–Take Some Profits, Buy < 32 in Conservative Portfolio
Kinder Morgan Energy Partners LP (NYSE: KMP)–Take Some Profits, Buy < 75 in Conservative Portfolio
SandRidge Mississippian Trust I (NYSE: SDT)–Buy < 30 in Growth Portfolio
Chesapeake Granite Wash Trust (NYSE: CHKR)–Buy < 25 in Growth Portfolio
Schlumberger (NYSE: SLB)–Buy < 100 in Growth Portfolio
Weatherford International (NYSE: WFT)–Buy < 17.50 in Growth Portfolio
Petroleum Geo-Services (Oslo: PGS, OTC: PGSVY)–Buy < 17.50 in Aggressive Portfolio
Core Laboratories (NYSE: CLB)–Buy < 105 in Growth Portfolio
SeaDrill (NYSE: SDRL)–Buy < 38 in Aggressive Portfolio
Oasis Petroleum (NYSE: OAS)–Buy < 36 in Aggressive Portfolio
EOG Resources (NYSE: EOG)–Buy < 125 in Growth Portfolio
Teekay LNG Partners LP (NYSE: TGP)–Buy < 41 in Conservative Portfolio
Peabody Energy Corp (NYSE: BTU)–Buy < 45 in Growth Portfolio