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Oil and gas stocks shine in dismal year for US stocks

In 2022, the oil and gas group will dominate blue chip lists of US stocks after profits surged in the wake of Russia’s invasion of Ukraine and investors returned to the sector.

Of the 25 stocks in the benchmark S&P 500 stock index, 15 stocks Fossil fuel operator. Occidental Petroleum is likely to top the list, with its stock up about 120% this year.

of energy sector This contrasts with the 21% decline in the S&P 500 as a whole, which in recent years has seen a spectacular resurgence in the stock market of companies shunned when climate change concerns reached Wall Street. Contrast that.

The upturn has been particularly pronounced in the US shale sector, where a decade of debt-backed drilling has resulted in low and volatile returns. Occidental Petroleum is a prime example of how the company borrowed his $40 billion to buy a rival in 2019, sending its stock price down almost 90% in two years.

However, a recovery in oil prices over the past 18 months, combined with restrained capital spending by operators, has led to a surge in free cash flow and a shift in the sector’s financial position.

“Companies have strong balance sheets and little short-term debt risk. [they] that is . . .Matt Portillo, head of research at investment bank TPH&Co, is moving toward a net cash position while offering a hefty dividend and share buyback program.”

“In a recession environment, it’s a great place.”

Post-war oil price spikes in Ukraine have bolstered the sector, with US oil and gas companies recording $200 billion in net profits in the two quarters following the Russian invasion.

It has also generated a political backlash, with US President Joe Biden describing strong returns for oil companies this year:windfall of warAmos Hochstein, his senior energy adviser, has called Wall Street’s pressure on shale groups to stop drilling more oil “un-American.”

ConocoPhillips, Occidental, EOG Resources, Pioneer Natural Resources and Devon Energy (the five largest independent producers of shale patches) reported combined free cash flow of over $16 billion in the third quarter, a record high was recorded.

Big cash means U.S. oil and gas companies could be debt-free by 2024, wiping out more than $300 billion in losses accumulated in the decade leading up to the coronavirus pandemic, according to Deloitte To do.

Asset managers are now flooding back into energy stocks, more than doubling the sector’s share in the S&P 500 to about 5%, analysts say.

The rally also sent clean energy stocks higher. Solar panel makers such as Enphase Energy and First Solar are one of the leading performers in the S&P 500 and are benefiting from the Biden administration’s rebuilding of the U.S. clean energy supply chain. However, NextEra, Avangrid, and others have retreated, and this trend is not entirely clear.

Line chart showing that Occidental and First Solar share significantly outperformed this year

But in the oil and gas industry, stock price spikes have been almost universal, from independent gas producers such as EQT to consolidated supermajors.Recent ExxonMobil market capitalization Surpassed electric car maker TeslaShares of the social media platform Twitter have fallen more than 50% since CEO Elon Musk bought it in October.

Analysts say hopes of higher oil prices next year will push away from tech and other growth stocks, such as producers of oil and other commodities that have historically provided a safe haven during recessions. should give impetus to the rotation of stocks to value stocks.

“Underestimating energy will be a challenge for many mutual funds going forward,” Portillo said.

https://www.ft.com/content/17fee937-4847-4fc7-b587-de21494c356b Oil and gas stocks shine in dismal year for US stocks

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