Energy ended up as a good bet last year. but what now?

Energy companies despite last year’s odds.

Although a Disease and pressure to remove fossil fuel fight global warmingStock prices of major energy companies are higher than the rest of the S&P 500.

Oil and natural gas prices, fly up 59%, was the main driver of energy stocks’ rally.

But the boom is not a stability. Even though energy stocks in the S&P 500 are up about 50%, it’s been a year of ups and downs.

“The trip there was difficult,” says Liz Ann Sonders, chief investment strategist at Charles Schwab. She warned investors thinking of jumping in now to “be mindful of the risk of chasing the performance of the sector based on what it has done over the past year.”

In 2021, oil prices recover from their 2020 declines, buoyed by growing demand amid the outbreak of the coronavirus pandemic. That has helped fuel inflation, and consumers have complained about higher pump prices.

In November, President Biden led a multilateral effort – including Britain, Japan, South Korea, India and China – to release oil from national reserves. OPEC Plus, a group of oil-producing nations, has agreed to gradually increase supply. Adding to the oil price uncertainty are the still-unclear effects of the Omicron variant of the Covid-19 virus on the economic recovery. In the longer term, there are big questions about how the world can make the transition to cleaner forms of energy like solar and wind power from oil, coal and natural gas.

David Lebovitz, global market strategist at JP Morgan Asset Management, said major integrated oil and natural gas producers are working to develop renewable energy technologies to stay relevant. . “They have one foot on either side of the energy line,” he said, “so it’s a way for investors to play both sides of the story if they don’t want to make a commitment.”

Energy sector funds tend to be dominated by these global companies. Eg, SPDR of the energy sector, an exchange-traded fund run by State Street Global Advisors, ended the year with $26.4 billion in assets, having a total return of 53.26% in 2021 after a management fee of 0.12 %. Forty-four percent of the portfolio is invested in two companies, Exxon Mobil and Chevron.

Michael Jin, a senior equity research analyst at Epoch Investment Partners, a New York subsidiary of Toronto-Dominion Bank, said US utility companies are starting to embrace solar turbines. sky and wind. “We have already started investing in renewable energy through the utility sector,” he said. “It’s a good way to approach. They can still generate cash flow and pay dividends.”

Utility funds, traditionally seen as a steady source of income because they hold regulated public utility services, posted strong returns last year. Vanguard Utilities Exchange-Traded Fund, with $5.6 billion in assets, returned 17.33% in 2021 after a 0.1% management fee. The fund’s return is 2.7 percent.

The $4.9 billion Vanguard Energy Fund, which used to hold mainly energy companies, has moved half of its assets into shares of utility companies since late 2020. Last year, the fund This has a total return of 27.71% after a 0.33% management fee. According to Morningstar Direct, its yield is 3.63%.

What will be the demand for oil in the coming decades remains an important issue for energy investors. A recent Morningstar report forecast that global oil demand will peak around 2030 and then gradually decrease. The report estimates that by mid-century, the global economy will consume 11% less oil than in 2019, largely based on the prediction that more than half of the world’s road traffic will be vehicles. electricity.

“We are optimistic about electric vehicle adoption,” said Dave Meats, director of energy and utility research at Morningstar. Partly, he said, it’s because China subsidized development of electric vehicle technology with the hope to dominate this global market in the future.

But he predicts that oil will continue to be needed for global shipping and air travel by 2050. The weight of batteries needed to cover long distances may be too great to keep ships afloat and plane overhead. He added that jet biofuel from sources such as corn or used cooking oil can be more expensive than conventional fuels.

Oil may not be the fuel of the future, but oil consumption isn’t going away anytime soon. It doesn’t look like much, but it’s possible that energy companies can carry on despite the difficulties for a while.

https://www.nytimes.com/2022/01/14/business/energy-environment/energy-companies-oil-gas-prices.html Energy ended up as a good bet last year. but what now?

Fry Electronics Team

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