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Energy prices lift oil and gas stocks, weigh on the economy – New Orleans, Louisiana

New Orleans, Louisiana 2021-10-28 10:17:51 –

Energy prices soar in 2021 and oil and gas inventories are clearly the winners, but the losers could turn out to be businesses and consumers.

The energy sector far surpassed the broader market in 2021. The S & P 500’s energy stock has increased by more than 50%, compared to about 20% for the index as a whole. Devon Energy, Marathon Oil and Occidental Petroleum have more than doubled in value this year.

Other areas of the economy are struggling to cope while energy stocks are benefiting from high demand and lagging supplies.

Soaring oil and gas prices are adding to the broader inflationary pressures that are putting pressure on businesses and pushing costs up. Various manufacturers find it more costly to strengthen operations as energy costs rise. Airlines are hurt by the high cost of jet fuel as they try to rebuild their profits. Consumers in the United States and around the world are facing wallet pressure due to rising energy costs.

Fertilizer maker CF Industries temporarily shut down two UK facilities in September due to soaring natural gas prices. Delta Air Lines CEO Edward Herrmann Bastian warned investors in early October that fuel prices would undermine the ability to remain profitable until the end of the year. “Moderate” losses are expected in the fourth quarter.

Consumers are already paying more for their commodities as businesses experience higher fuel costs, raw material costs, and supply chain disruptions. More worrisome for some analysts is what happens when people have to cut spending to pay higher gas and home heating costs. Economic recovery depends on continued consumer spending, but higher energy costs can result in less discretionary spending on services, travel and commodities.

“At this point, US consumers were able to withstand rising energy prices,” said Megan Horneman, Director of Portfolio Strategy at Verdence Capital Advisors. “But there is evidence that consumers are looking to credit cards to pay for the rising costs of essentials, including energy.”

The Energy Information Agency estimates that US households will see a 30% increase in natural gas spending and a 43% increase in kerosene spending this winter. According to AAA, Americans are already caught in pumps where gasoline prices have risen about 56% from a year ago.

Europe is facing a natural gas crisis as winter approaches, when there is not enough supply to meet demand. China is also facing a shortage, with electricity already allocated to industries in certain locations, where a slowdown in manufacturing could ultimately lead to higher prices for global commodities and consumer goods. I have.

According to analysts, the disruption in energy supply and demand is likely to be prolonged. OPEC and other suppliers are still cautious about increasing oil production and may be too late to increase their natural gas supply ahead of the winter. It will probably continue to support energy stocks as a big winner in the economy.

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Energy prices lift oil and gas stocks, weigh on the economy Source link Energy prices lift oil and gas stocks, weigh on the economy

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