Oil and gas stocks, the best performing stocks on the S&P 500 so far this year, still have room for improvement as retail and portfolio investors seek to increase exposure to traditional energy , expecting a worsening energy crisis and fuel shortages. This winter. Despite market concern that soaring energy prices will continue to increase their upward pressure on inflation and that central banks will continue to try to combat said inflation with continued and large hikes in interest rates, the energy space currently looks attractive to investors as Europe jostles for energy supply .
Investors are looking to increase their exposure to energy stocks
Equity strategists, portfolio managers and retail investors are increasingly bullish on energy stocks, according to the latest Bloomberg MLIV Pulse survey conducted last week shows.
The survey of 814 respondents, including retail and portfolio investors, risk managers, buy-side and sell-side traders, equity strategists and economists, showed that two-thirds of all respondents intended to increase their exposure to energy-related stocks and bonds over the next few years. six months.
In addition, nearly three-quarters (74%) of respondents see soaring electricity and natural gas prices as the main source of global inflation this year, especially if Russia further disrupts supply. gas by pipeline to Europe this fall and winter.
“I definitely want to stay invested in energy stocks due to the massive supply constraints,” Chris Wood, global head of equity strategy at Jefferies, told Bloomberg TV in an interview.
Energy Supply Constraints
Despite oil prices falling in recent weeks due to recession fears, supply from Russia could be reduced in December when the EU ban on imports of Russian oil by sea comes into effect. force, which will lead to a tightening of the market despite a potential slowdown in demand growth. The Russian oil price cap imposed by the G7 and a possible Russian gas price cap in the EU could further complicate the energy supply of the world’s most developed economies if Putin continues his action. threatens to stop supply all energy products to Europe if the EU and its Western allies impose price caps on Russian oil and natural gas. Related: OPEC stays below production target despite further production increase
A shortage of critical fuels such as natural gas and diesel could boost the stocks and bonds of energy companies as they have the ability to invest in more oil and gas.
Years of underinvestment in the oil and gas sector have come back to haunt the world’s energy supply, according to Jeff Currie, global head of commodities research at Goldman Sachs, who was bullish on oil all year.
“The only way to solve the long-term energy problem is through investment — and oil companies are the channel for capital spending to solve the problem,” Currie told Bloomberg.
In natural gas, Russia’s cutoff of all supplies via Nord Stream to Germany is a bullish argument for energy companies producing and/or trading and selling LNG on the spot market, including supermajors such as Shell , TotalEnergies or BP.
Respondents to the Bloomberg MLIV Pulse survey expect natural gas to be the most constrained commodity in the near term. Most of them also believe that OPEC+ will not let oil prices fall too low and would intervene with a cut in production in the market if a recession undermines demand for oil.
In addition, almost half, or 44%, of respondents say that the current price of oil does not adequately reflect real supply and demand.
Saudi Energy Minister Prince Abdulaziz bin Salman last month highlighted the “disconnect” between paper and physical markets, saying OPEC+ was ready to cut production at any time, in any form, if he believes it would bring stability to the “schizophrenic” oil market.
Energy: better return and outlier in a falling stock market
Energy supply constraints expected this winter aren’t the only factors drawing more investors into oil and gas stocks and bonds. Despite significantly outperforming the S&P 500 this year, the energy sector has room for further growth. Energy stocks are still significantly cheaper than other sectors based on upcoming price-to-earnings (P/E) ratios, analysts say.
Year-to-date, the energy sector is the best performing sector in the S&P 500 index, according to market data compiled by Yardeni Research.
The S&P 500 energy sector had gained 47.4% year-to-date through September 12. By comparison, the S&P 500 is down 13.8%, and all other sectors except utilities have also lost ground since January.
Within the energy sector, the integrated oil and gas subsector jumped 53.7%, and the oil and gas exploration and production subsector jumped 52%. 4% amid tighter supply, soaring commodity prices and expected energy shortages and rationing in Europe this winter.
Even some ESG-focused funds are do not reject immediately oil and gas stocks, as years of underinvestment in new supplies, the energy crisis and the Russian invasion of Ukraine have highlighted energy security and accessibility. Recent analysis has suggested that some ESG funds are now including traditional energy stocks in their portfolios, something unimaginable just two years ago.
By Tsvetana Paraskova for Oilprice.com
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