Are you stressed about rising gas prices? There’s major upside potential for stocks if you know where to look – New York Post

Are you stressed about rising gas prices?  There’s major upside potential for stocks if you know where to look – New York Post

Stocks kicked off the good-to-great year I predicted in December — despite recent volatility and fears of an escalating war in the Middle East. Other pleasant surprises await you.

A big problem: energy stocks, whose recent outperformance should be strong at the end of 2024. The sector’s recovery is not a simulation induced by OPEC+ cuts or a temporary increase caused by war. It’s the real thing. Let me show you why.

After energy’s strong performance in 2022 – following soaring oil prices as Putin invaded Ukraine – most clairvoyants imagined 1970s-style supply shortages, fueled by Russian aggression, OPEC+ supply constraints, and China’s post-COVID re-acceleration. This, supposedly, would cause oil prices to rise again – and fuel energy stocks.

The energy sector recovery is not a simulation of OPEC+-induced cuts or a temporary war-induced surge. REUTERS

Instead, 2023 has humbled the energy bulls. The sector gained just 2.5% globally while global stocks rose 23.8%. S&P 500 energy stocks fell -1.3% while the S&P recorded staggering gains of 26.3%.

For what? Oil prices have plunged from their 2022 peak. Global production has erased shortage fears and looks set to continue rising in Norway, Guyana and North America. Biden’s temporary ban on new federal land leasing has had no impact. As the world’s largest producer, U.S. production has reached record levels.

As a result, oil prices hovered between $70 and $95, crippling energy companies, whose profits largely parallel crude prices.

Today, energy bears are repeating that mistake – but this time in reverse, extrapolating the 2023 shift to 2024. They reject the new energy recovery, claiming that OPEC+ cuts and the wars in Ukraine and the Middle East are only causing a “temporary” increase. Fund flows, fund manager surveys and valuations all show that investors are significantly reducing their holdings in the energy sector.

Field production of cruise oil has increased over the past decade. Chris Ciarmiello

Still, oil prices in 2024 are expected to remain high, reviving profits for energy companies – sending oil and gas stocks toward a great wall of worry.

This is not due to ongoing OPEC+ cuts. They are now only symbolic, because stocks and oil prices anchored them long ago. Ditto with widely watched regional wars – despite recent movements. Nor can Biden take credit for his pause on new LNG (liquefied natural gas) terminal export permits – which are now facing backlash in Texas, Louisiana and more a dozen other states.

Ongoing OPEC+ cuts have not dampened the energy sector’s recovery. REUTERS

Rather, it is a simple story of incentives. Seeking higher prices after the invasion of Ukraine, energy companies decided to increase production. Biden’s LNG “pause” – even if it lasts beyond November – is completely incapable of preventing terminals already permitted and under construction from amply supplying the world.

At the same time, U.S. producers are completing their wells much faster than they are drilling new ones. The U.S. “fracklog” of drilled but uncompleted wells fell 17.5% from a year ago.

This means less inventory can come online quickly – and well-positioned producers don’t replace it. After years of consolidation, global mega-drillers dominate. Thanks to the big guys’ judicious production targets, the number of US drilling rigs has increased from 621 at the end of 2022 to 506 today. Wells drilled are down 16.2% year-on-year. Production is about six months behind drilled wells. This will soon slow down considerably.

Drilled well activity is currently declining after a sharp increase. Chris Ciarmiello

Meanwhile, pessimistic analysts are underestimating global oil demand and placing too much emphasis on economic weak spots like Germany and China. Still, solid U.S. GDP growth, the euro zone’s better-than-expected economy and China’s stable consumption signal stronger-than-expected oil demand.

All of these are leading to – you guessed it – a major rise in oil prices, which I hope will surpass 2023 highs. This, coupled with cost discipline, should generate a windfall in energy revenue . Big US and UK oil companies are expected to benefit the most. Their stronger balance sheets, low-cost production and integrated business models put them in the best position to capitalize when oil prices rise but don’t skyrocket.

Oil prices in 2024 are expected to remain high, which will revive profits for energy companies – sending oil and gas stocks towards a great wall of worry. Christophe Sadowski

But you might be thinking, high oil means high gas prices – bad! Unpleasant? Yes. But U.S. GDP and consumer spending have proven time and time again that oil and gas prices are not a major driver of economic change. The global economy and stocks have performed well despite periods of energy price spikes well above 2024 potential.

So take advantage of this bull market as energy drives stocks higher.

Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author and a regular columnist in 21 countries.


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