US energy sector breaks negative stock market trend


Oil and gas companies were the only bright spot in the dismal US stock market in the first half of the year, as the energy sector benefits from a sharp rise in commodity prices amid the military action in Ukraine.

In its first six months, the energy sub-index of the S&P 500, which includes 21 major oil and gas companies, jumped by almost a third, reversing a trend that saw this half-year as the broader market’s worst in more than 50 years.

With a 29% gain, the sector’s market capitalization increased by more than $300 billion, while the index as a whole lost more than $8 trillion, or 21%.


“This is overwhelming, just a huge outperformance,” said Pavel Molchanov, an analyst at Raymond James. “Stating the obvious, energy is currently the best-performing sector in the stock market.”


The performance of oil and gas stocks largely coincided with the rise in commodity prices, which began to rise even before the start of 2022 as supply lagged behind growing demand as the economy recovered from the pandemic. However, a decision in February by Russian President Vladimir Putin to hold a NWO in Ukraine has sent prices skyrocketing as Western countries impose sanctions and seek alternatives to imports from Russia.

American oil West Texas Intermediate has risen in price this year by more than 40% and by the end of June was worth around $106. Benchmark gas Henry Hub US added about 60% and is trading at $5.70 per million British thermal units.

As a result, US oil and gas companies, from drillers to refiners, have benefited from an influx of cash that has sparked outrage as consumers have to pay record prices at gas stations. President Joe Biden recently said that ExxonMobil, America’s largest manufacturer by value, “made more money than God this year.”

Temporary rollback

However, it cannot be said that this has had a positive effect on the industry. Energy stocks pulled back sharply last month as concerns grew that a rapid rise in interest rates would trigger a recession in the US. In June, oil and gas showed the worst results in the S&P index, losing 17% due to lower oil and gas prices.

Fred Fromm, who heads the natural resources investment fund at Franklin Templeton, said some pullback from the previous rally “isn’t surprising,” but long-term pressure that pushed stocks up remains.


“The US is not the main driver of oil demand for a decade or more… We believe that even in a period of economic slowdown or moderate contraction, this is largely offset by other demand factors such as the reopening in China,” he added. he.


Demand concerns stemming from lockdowns in China, the world’s largest oil importer, have put pressure on rising prices earlier in the year.

Strong oil and gas performance in the first half of 2022 marked a dramatic change in a sector that had been on the verge of ruin for many years. The S&P 500 energy index posted its worst performance in a decade as increased drilling amid debt triggered huge losses, forcing investors to leave the sector.

The rally may continue

However, industry officials say it has changed the way it operates and is now focused on discipline in matters of capital management and shareholder returns. According to Raymond James, the world’s top 50 manufacturers will total just over $300 billion in capital spending this year, nearly half the record $600 billion in 2013.

Despite weaker June data, analysts and investors believe that oil and gas will continue to recover in the second half of the year, as the conflict in Ukraine will continue to cause supply disruptions.


“As long as the war continues, oil prices are likely to be above $100 per barrel, which means that the profitability of almost all participants in the oil value chain will be at or close to a record high,” Molchanov said.

“There are a lot of unknowns, more than I’ve ever seen before,” added Fromm, who expects energy stocks to remain volatile in the next few months. “However, we view any weakness as a potential buying opportunity.”


Prepared by Profinance.ru by materials editions of The Financial Times

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