MarketsApr 22, 2024
Demand and Geopolitical Uncertainty Are Boosting the Energy Sector In A Banner Start to the Year
Petroleum Markets
Noah Weidner
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Four years back, global markets stood still as US oil prices plunged into the red for the first time — hitting negative $30 on Apr. 20, 2020. This collapse spelled doomsday for industry powerhouses like Shell and British Petroleum, which boldly declared that the world had finally reached peak oil demand. Luckily for them, they were wrong.
Greasing the stocks: Two years later, oil demand not only bounced back but surpassed pre-pandemic levels with record back-to-back years of demand that sent oil and gas giants like Exxon Mobil and Chevron to new heights. That’s helped the Energy Select Sector SPDR Fund, which tracks US energy names, soared over 50% in 2021 and another 60% in 2022. The sector continues to lead the market to start 2024 — up 14% year-to-date (YTD) and closing in on an all-time high.
Oil heavyweights have invested billions in recent years to prepare for life after oil — with a particular focus on natural gas, which is anticipated to see a 50% surge in demand over the next 15 years. To capitalize on this opportunity, leaders are merging with other domestic natural gas and crude oil producers in hopes of maximizing their gains — with deals reaching their highest point since 2012 last year.
Oil’s well doesn’t always end well: Before you rush to buy energy stocks, it’s worth singling out that investors are currently valuing the industry at a significant discount to the rest of the S&P 500, with a 12.8x price-to-earnings ratio — potentially signaling a slowdown in the oil and gas market. FactSet’s latest Earnings Insight warns that modestly lower energy prices are expected to hamper the sector’s earnings in Q1, but analysts have upgraded their outlook for the remaining quarters of the year due to growing power demand and global uncertainty.
