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Sector spotlight: all eyes on energy stocks

The rise in gas and oil prices over the last six months has been painful for consumers across the globe, but for those investing and trading in energy stocks, this recent increase has been well received after a few tricky years.

The performance of energy stocks over the last two years has been a turnaround story. During the depths of the Covid-19 lockdowns, a number of energy producers had to drop their dividends and slash their profit projections as global consumers stayed indoors and used less energy. Energy became cheap and US oil prices even turned negative due to storage fears. Underinvestment in oil and energy storage during this time led to cutbacks in oil and energy production as the world required less.

Fast forward to now, we seem to be living the consequences of these decisions with energy inventories sapped. Russia’s invasion of Ukraine in February has further fanned the flames and led to shortages of natural gas in Europe. In turn, oil and electricity prices have risen massively for consumers and buyers. New forecasts further predict that the consumer energy price cap in the UK could rise by an eye-watering 50% in October 2022 as wholesale energy prices remain high.

Politicians and governments are intervening with windfall taxes on energy companies who are gaining from this period of high prices. In response to the crisis, OPEC+ announced in early June that they would boost energy production, but this has had little impact on oil prices which remain well over $100 per barrel. Market participants have been buoyed by the MSCI World Energy Index rising 21% since the start of this year (data at market close on 22.06.22). Multinational oil and gas companies BP and Shell have also seen their share prices increase by 11% and 23% respectively.

What happens next?

Energy costs continue to be of high concern across the globe as high prices impact global inflation and hurt economies. Many expect high prices to continue into 2023 as governments and buyers wrestle with continued shortages. Global leaders have discussed boosting energy supplies by increasing nuclear and renewable energy production, but these projects can take a number of years to come to fruition.

For those trading energy stocks, upcoming financial results will offer a snapshot of the sector’s performance and expectations for the months ahead. Shell will be announcing its second-quarter results and dividend on the 28 July with BP following suit on 2 August. Furthermore, the IEA will publish its monthly Oil Market Report on 13 July which will analyse trends within oil markets and track the latest developments in supply and demand.

Published: 28 June 2022

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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