Best Energy Stocks to Buy in 2022Feb 03, 2022
Do you know what's silently the best performing sector in the market? Energy.
While the S&P 500 was up 20% in the last 12 months and the entire Crypto market was up 55%, Energy was actually up 70%!
So why is this happening? Well it's really all due to gas and oil prices rising. If we look at the chart below we can see that the performance of energy is moving lock step with the price of oil -- which makes total sense.
This is because with higher oil and gas prices, energy companies can sell their products at much higher costs.
The next questions you may be asking yourself is, "Why did this happen, will it continue and who stands to benefit?"
Let's help answer those three below 👇
Why oil prices increased:
Oil and gas prices increased for two main reasons:
The first reason is due to supply chain issues. In 2020 when the world was "shut down", energy consumption plummeted. But as the world started to re-open over the last year, the need for energy drastically increased seemingly overnight. But because many parts of the supply chain were and continued to be disrupted, we ended up in a situation where the demand for energy exceeded the available supply of it. So when we say supply chain issues, we literally mean direct trouble with harvesting energy and then transporting it -- which led to this shortage. These issues arose for many reasons but one of which was due to human labor. With people getting sick and companies globally shutting down, the ability to harvest energy and transport it via literal humans was massively stunted.
The second reason was due to inflation. In case you missed it over the last year, seemingly everything became more expensive. The price of all goods shot up as we dealt with supply chain issues, supply/demand imbalances, massive government stimulus and a handful of other issues. While this is still a huge issue in the economy, the US government is aimed at tackling it. While we aren't at the peak yet, we believe we could be approaching it soon.
Now that you understand why oil prices increased, let's discuss if we think this will continue.
Oil price outlook:
As we've been mentioning now for the last several months, we think inflation should start to peak when the Fed begins to raise interest rates (in March/April) and cuts back their stimulus program.
But even if inflation begins to peak in the next several months, we project oil demand to increase drastically over the next year -- which should keep the price of it up.
This is largely due to the fact that the world is still "re-opening". Global travel still hasn't rebounded and neither has global logistics.
However as the world continues to open up more and more, the demand for oil based products should continue to flourish.
While we are massive investors in clean energy products as well, in the nearer term, our dependency on oil based energy is undeniable.
Therefore we still like the investment prospects of the oil industry and believe the price of oil should maintain its levels even if inflation dips.
Which companies will benefit from this:
So now that we've explained why oil has increased and if it will continue to increase, we can talk about the best companies suited to benefit from the current energy landscape.
They are 👇