Oil and gas companies have been in the crosshairs of public outrage for years now and the pressure is only growing, with a new emerging breed of investors pressuring the industry to clean up its law. . And yet, there also seem to be a lot of older types of investors, those who seek returns and pile into oil and gas because they provide returns.
So far this year, the energy sector of the S&P 500 has gained 29.4%, Palash Ghosh reported for Forbes. This makes energy the best performing sector in the S&P 500, followed by far by financials, with a gain of 17.6%.
The recovery in oil inventories came from improving oil prices, and oil prices have improved mainly on the hope that economies will soon start to return to normal. Mass vaccinations in major oil markets have done a lot to fuel this post-pandemic optimism about oil, pushing benchmarks above $ 60 a barrel and drawing investors to oil stocks.
Vaccines were, of course, not the only factor. OPEC + also maintained its limited production for longer than initially expected. The cartel decided at its last meeting to gradually increase production and the fact that this decision did not bring prices down shows that expectations of a rebound in demand are really high right now.
The OPEC + decision is remarkable: it would see the combined production of all participants in the extended cartel increase by about 2 million bpd by July. That’s an additional 2 million barrels per day entering a market that is already seeing higher volumes in Libya and Iran, both exempt from OPEC’s production cut-back deal. And demand has not yet fully recovered in most parts of the world.
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It’s all about expectations, however. If OPEC + expects demand to pick up soon – and it does, albeit cautiously – then traders will buy oil stocks in anticipation of this rally, even if it takes longer than the recovery. most had not hoped for it. We already saw this at the end of last year when the first vaccines against Covid-19 were approved. Oil prices – and oil stock prices – immediately surged and have since continued to move mostly in an upward direction.
So it’s no wonder that analysts are advising their clients to buy oil stocks. They have their preferences – Hess Corp is one and Cheniere is another, with Baker Hughes a third choice – but sentiment across the industry is much more positive than it was earlier. barely a year.
All of this is happening as pressure continues to mount on oil and gas companies to fundamentally cease being oil and gas companies. What the surge in oil stocks demonstrates, however, is that many investors still prefer returns over promises of clean energy. One of the first evidence of this was the drop in BP’s share price after CEO Bernard Looney announced perhaps the most ambitious energy transition plan among the big oil majors last year.
Other European majors have made equally ambitious green energy commitments, for which they have grudgingly received praise with warnings that more needs to be done. At the same time, they continued to carry out their main activity, namely the production, refining and sale of petroleum and petroleum products. And this activity has rebounded from last year as demand started to improve and prices increased. Some oil companies are already planning to restart their share buyback programs, and this is a strong signal that things are improving financially.
ESG investing can be all the rage these days, and solar stocks may be the favorites among the ESG crowd, but oil has yet to fall out of favor. After perhaps the most difficult year in history for the industry, oil and gas is on its feet, and they are recovering quickly.
By Irina Slav for Oil Octobers
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