Investors rush to oil stocks despite ESG surge

Oil and gas companies have been in the crosshairs of public outrage for years and the pressure has only grown, with a new emerging generation of investors pressuring the industry to clean up its act. And yet, there also seem to be a lot of old-fashioned investors, those who seek returns and invest in oil and gas because they generate returns.

So far this year, the energy sector on the S&P 500 has gained 29.4%, Palash Ghosh reported for Forbes. This made energy the best performing sector in the S&P 500, followed by financials in second place, with a gain of 17.6%.

The rally in oil stocks came about on the back of improving oil prices, and oil prices have improved mainly on the hope that the economies will soon start to return to normal. Mass vaccinations in major oil markets have done a lot to fuel this post-pandemic optimism about oil, pushing benchmarks above $ 60 a barrel and luring investors into oil stocks.

Vaccines were of course not the only factor. OPEC + also maintained its limited production for longer than initially expected. The cartel decided at its last meeting to gradually increase production and the fact that the move did not bring prices down shows that expectations for a rebound in demand are really high right now.

The OPEC + move is notable: it would see the combined production of all participants in the expanded cartel increase by some 2 million barrels per day by July. This is an additional 2 million barrels per day arriving in a market that is already experiencing higher volumes from Libya and Iran, both exempt from the OPEC production cut agreement. And demand has not yet fully recovered in most parts of the world.

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It’s all about expectations, however. If OPEC + expects demand to recover soon – and it does, albeit cautiously – then traders will buy oil stocks in anticipation of this recovery, even if it takes longer than the recovery. most had not hoped for it. We already saw this at the end of last year when the first Covid-19 vaccines were approved. Oil prices – and oil stock prices – immediately surged and have since continued to move mostly in a bullish direction.

So it’s no wonder that analysts are advising their clients to buy oil stocks. They have their preferences – Hess Corp is one and Cheniere is another, with Baker Hughes a third choice – but sentiment across the industry is a lot more positive than it was all ago. just a year.

All of this is happening as pressure continues to mount on oil and gas companies to stop being oil and gas companies. What the surge in oil stocks shows, however, is that many investors still prefer returns over promises of clean energy. One of the first evidence of this was the fall in BP’s share price after CEO Bernard Looney announced perhaps the most ambitious energy transition plan among the big oil majors last year.

Other European majors have made similarly ambitious green energy commitments for which they have grudgingly received praise with warnings that more needs to be done. At the same time, they continued to exercise their core business, namely the production, refining and sale of petroleum and petroleum products. And this activity has rebounded from last year as demand started to improve and prices rose. Some oil companies are already planning to relaunch their share buyback programs, and this is a strong signal that things are improving financially.

ESG investing may be all the rage these days, and solar stocks may be the favorite of the ESG crowd, but oil is not yet out of favor. After perhaps the most difficult year in the history of the industry, oil and gas is on its feet, and it’s coming back quickly.

By Irina Slav for Oil Octobers

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Felix J. Dixon