2022: The year oil and gas stocks become the market darling

For several years, oil and gas companies have come under attack from investors, the non-governmental sector and governments for their alleged leading role in climate change.

From shareholder resolutions demanding greater commitments to reduce greenhouse gas emissions to lawsuits to force oil and gas operators to effectively curtail their core businesses, the backlash has been relentless.

As a result, oil and gas stocks have become pariahs of stock markets, just as their issuers have become pariahs of the business world. That is, until this year.

This year, a shocking number of countries have realized that while reducing emissions is a noble goal, ensuring uninterrupted electricity supply is an immediate priority. As a result of this realization, fossil fuel use in Europe, the climate change vanguard outpost, has increased significantly, taking oil and gas prices with it.

As prices rose, so did the prices of oil and gas resources. In fact, these have risen so impressively that they have become the top performers on the market this year. The reason: Big profits amid the European energy crisis, which has drawn hostile attention from climate-conscious governments.

The Financial Times informed Fifteen of the top performers on the S&P 500 this week are expected to be from the energy industry, and Occidental Petroleum appears at the top of the list after its shares have gained 120 percent this year. Moreover, the energy sector outperformed in a year when the broader stock market underperformed amid aggressive monetary tightening in both the US and Europe and a rise in bond yields that drove investors away from equities. , offending some of the best performers of the recent past.

Bloomberg recently noted report The 21 percent drop in the S&P 500 is on track to be the biggest since 2008, the year of the global financial crisis. Only this time, it’s Big Tech that seems to be the worst hit, with crypto companies taking additional hits from the digital currency collapse and the collapse of the FTX cryptocurrency — Meta alone is down 60 percent this year.

Related: China Sets Tone for Year-End Oil Markets

Even Tesla hasn’t survived this year’s stock market jitters: In recent weeks alone, the company has lost 70 percent of its value due to growing fears about demand for electric cars. Many called the price drop a long overdue correction and reality check, but so did Elon Musk was assured Tesla employees said the company will eventually return to its most valuable status

Meanwhile, energy stocks are up roughly 60 percent overall this year in the United States alone, the FT notes in its report, and are looking increasingly appetizing to investors who were previously skeptical of oil and gas because of their emissions practices and ESG-focused advisors. the only good investment in the long run is an ESG investment.

The ESG story has also begun to unravel significantly this year with ESG funds low performance traditional foundations and evidence is collected This is not a temporary bug, but rather a trend in ESG investing as it puts political priorities over financial priorities. ESG investments have also become a focus of the Republican-dominated Congress and state legislatures.

In this context, and with increasing demand for oil and gas – a fact not even disputed by the International Energy Agency – it was only a matter of time before investors remembered what their number one priority was when investing: making money.

With record profits and future corporate taxes threatening the cost of more production, oil and gas companies are more than happy to actively return money to investors in both Europe and the US, but particularly in the US shale patch.

The US shale oil and gas industry has been a textbook example of flexibility this year, when it defied all expectations of rapid production growth, opting to stay out of the global oil production growth game and instead return cash to shareholders and exit production. increase for later.

But Big Oil is also returning cash from its record profits this year, prompting many governments to demand windfall taxes because, ironically, Big Oil wasn’t using its record profits to produce more oil, as those same governments did. was He wanted Big Oil to do it before it ran out of fossil fuels.

Thanks to a strong year that forced many to remember that the world still runs on oil and gas, not wind and solar, the oil industry has also reacted more boldly to hostile governments and non-governmental organizations.

TotalEnergies a claim Greenpeace v. France for spreading “false and misleading information” about the Big Oil company’s emissions after Greenpeace published a report claiming TotalEnergies had understated its emissions.

Exxon targeted None other than the EU itself filed a lawsuit a few days ago in response to windfall tax plans on energy companies. According to the plaintiff, the tax will discourage investment. The claimant also argued that the windfall tax was outside the competence of the European Commission.

Overall, 2022 was an unexpectedly good year for the long-demonized oil and gas industry, especially financially, which at the end of the day is what any industry really wants.

By Irina Slav for Oilprice.com

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