January 24, 2022

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Energy Ended Up as a Good Bet Last Year. But Now What?

2 min read

Energy companies defied the odds last year.

Despite a pandemic and pressure to phase out fossil fuels to combat global warming, the share prices of major energy companies outshone the rest of the S&P 500.

Oil and natural gas prices, which soared 59 percent, were the main impetus for the energy stock rally.

But the boom wasn’t a steady one. Although energy stocks in the S&P 500 rose around 50 percent, it was an up-and-down year.

“The ride getting there has been extreme,” said Liz Ann Sonders, the chief investment strategist at Charles Schwab. She cautioned investors thinking of jumping in now to “be mindful of the peril of chasing sector performance based on what it has done in the past year.”

In 2021, oil prices rebounded from a decline in 2020, rising in response to growing demand as the coronavirus pandemic appeared to be ebbing. That helped drive inflation, and consumers grumbled about higher prices at the pump.

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

David Lebovitz, a global market strategist at J.P. Morgan Asset Management, said the large integrated oil and natural gas producers are working on developing renewable energy technologies in a bid 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.”

Funds that invest in the energy industry tend to be dominated by these…

J. Alex Tarquinio

2022-01-14 13:08:46

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