At the end of last week, nearby crude oil prices on NYMEX WTI futures and ICE Brent futures were firmly above the $80 per barrel level and heading for new and higher multi-year highs. Natural gas had plunged from the highest price of $6.466 per MMBtu in early October to $3.536, which was back over the $4.25 level.
In early 2022, we are witnessing a sentiment shift in the stock market as technology shares have declined while energy companies are rallying. Energy is the new tech in early 2022, and US policy could mean that traditional energy’s trend will continue over the coming months.
The NASDAQ posted impressive gains in 2020 and 2021- It’s lower in early 2022
- The NASDAQ composite rose 43.6% in 2020.
- It added to gains with a 21.4% rise in 2021.
- Over the first two weeks of 2022, the composite has moved 4.8% lower.
The traditional energy stocks suffered over the past two years, underperforming the leading indices
- The S&P 500 energy SPDR ETF (XLE) is a portfolio of the top US traditional energy companies.
- The XLE moved 36.9% lower in 2020.
- The XLE recovered in 2021, posting a 46.4% gain.
- Over the first two weeks of 2022, the energy ETF moved 16.2% higher.
Energy commodities take the stairs higher and an elevator shaft lower
- Commodities are volatile assets - Energy is a leading raw material sector.
- Crude oil is the energy commodity that powers the world.
- Crude oil fell to negative territory for the first time in April 2020.
- As of the end of last week, nearby NYMEX crude oil futures were $124.14 higher than the April 2020 low.
- Price spikes tend to occur on the downside.
US energy policy has surrendered traditional energy independence
- Addressing climate change involves favoring alternative and renewable energy sources over traditional fossil fuels.
- The US Biden administration has embraced a greener energy production and consumption path.
- US output reached a record high of 13.1 million barrels per day in March 2020. At 11.7 mbpd as of January 7, it is 10.7% below the high.
- OPEC and Russia have seen their influence increase as US production and commitment to hydrocarbons deceases.
- OPEC+’s mission is to achieve the highest possible oil price for its members.
Oil and gas continue to power the world
- The world’s most populous countries, China and India, require increasing amounts of fossil fuels.
- Crude oil and natural gas futures reached the highest prices since 2014 in 2021.
- Thermal coal for delivery in Rotterdam, the Netherlands, rose to an all-time high in 2021.
- Economic expansion in 2022 will only increase the demand for fossil fuels
Triple-digit crude oil will make the energy sector shine over the coming months
- The next technical target for NYMEX crude oil futures is at the 2014 high at over $100 per barrel.
- The US administration’s policies create a barrier to entry for hydrocarbon production, discouraging new entrants and competition.
- The leading US oil and gas companies have a virtual monopoly on domestic production, servicing, and refining.
- The trend is your friend, and it is higher for oil and gas stocks in early 2020 as they continue to outperform the overall stock market.
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!