The energy market is on a wild ride, showing no signs of abating. After topping the charts in 2021, funds investing in energy stocks have once again become the strongest performance of any sector in the first quarter.
But some investors wonder how long the trend could continue in the face of growing uncertainty, with European leaders debating a halt to Russian imports and sanctions, inflation and an epidemic threatening global growth.
“I don’t think I’ll add energy exposure now,” said John Maloney, chairman of M&R Capital Management, a New York-based asset management firm. “Stocks can lift more to them, but you don’t have to hold the last dollar of profit.”
Energy funds grew 32 percent in the first three months of the year, the largest return ever in any sector. In 2021, as energy recovered from the depths of the Covid-19 epidemic, energy stock funds rose 40.9 percent, compared to the S&P 500’s 26.9 percent.
As is often the case, fuel company shares take an indication from oil prices. Brent crude, the closely watched global benchmark, hit an intraday high of about $ 140 per barrel on March 7 – its highest point since 2008 – as the United States prepares to ban Russian energy products from entering the country. It has since hovered around 100 100 a barrel, and the U.S. Energy Information Administration has forecast that it will trade at 10 105 a barrel this year, up from an average of $ 71 in 2021.
European Union leaders continue to debate how quickly and dramatically reducing their dependence on Russian power. But while Russia does not have a complete ban on energy in Europe, many companies are avoiding it. “There is a red letter attached to the purchase from Russia,” said Tom Kloza, the world head of energy analysis of oil price information services. This could push up global oil prices.
EU leaders have also announced ambitious plans to buy more liquefied natural gas from US producers. Even before Russia’s invasion of Ukraine – and Russian President Vladimir V. Putin threatened to shut down Spigat if countries did not pay the ruble – low natural gas reserves in Europe and record prices led US producers to send more gas there. European LNG imports from the United States reached record highs in December, surpassing those in January and February.
But there is a catch. The United States, the world’s largest energy producer, does not have too much extra power in either oil or gas.
“Many Gulf Coast LNG projects have been hampered by lack of government approval but lack of financial support,” said Jason Bordoff, founding director of Columbia University’s Global Energy Policy Center. “But the Europeans have sent a signal that they want to sign a longer-term agreement to supply LNG, so it will help those projects reach a final investment decision.”
It’s not just the financial backers who are reluctant to finance new research and production. Shareholders have been claiming a large portion of the profits after a disastrous return on investment in the energy fund year after year. According to Morningstar Direct, a typical investor who bought an energy stock fund five years ago will break up recently. So the energy industry is focusing on shareholder returns rather than pouring profits into its business, a strategy that refers to markets as a capital discipline.
David LeBoitz, Global Market Strategist at JPMorgan Asset Management, said: “The new method is going into profitable fields and digging five to seven wells instead of 10. If you’re a power company, you don’t want to overwhelm the world with extra supplies.”
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In the portfolio, Mr. Maloney manages clients, including the Vanguard Energy Exchange-Traded Fund. This $ 8.3 billion fund had a 39 percent return in the first quarter after a 0.1 percent management fee. Exxon and Chevron hold the top two, with a combined weight of 38 percent. Exxon shares rose 36.5 percent in the first three months of the year; Shares of Chevron rose 40.1 percent.
Chevron has suspended sales of some chemical and consumer products in Russia, saying it has no exploration or production activities there. It has a 15 percent stake in an oil pipeline that transports crude oil from Kazakhstan to a Russian terminal in the Black Sea, where shipments continue uninterrupted. There, Kazakh oil could be mixed with Russian crude oil, although Chevron said his “efforts are in compliance with US law.”
Exxon, which has done much business in Russia, announced on March 1 that it was leaving the country and would no longer invest there “in the current context.” It was conducting a large exploration project in the far east of Russia, known as Sakhalin-1.
Mr Maloney said after the stock market crash last year, he initially saw energy stocks as a hedge against other holdings that could go in the opposite direction, such as airlines, shippers and other companies that are sensitive to fuel. Price