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The year oil and gas stocks became market darlings

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For several years, oil and gas companies have found themselves under attack from investors, the non-governmental sector and governments for their alleged leadership role in climate change.

From shareholder resolutions pushing for greater commitments to reduce greenhouse gas emissions, to lawsuits to force oil and gas operators to effectively curb their core business, the barrage has been relentless.

As a result, oil and gas stocks have become the pariah of the stock markets in the same way that their issuers have become the pariah of the corporate world. That is, until this year.

This year, a shocking number of countries realized that while reducing emissions could be a noble goal, the immediate priority was to have electricity without cuts. As a result of this realization, the use of fossil fuels in the vanguard of climate change in Europe has increased dramatically, dragging oil and gas prices with it.

As prices rose, so did oil and gas stock prices. In fact, these have grown so impressively that they have become the top performers on the market this year. The reason: huge profits amid the European energy crisis, which, needless to say, has also drawn hostile attention from climate-conscious governments.

The Financial Times reported this week that as many as 15 of the top performers in the S&P 500 are expected to come from the energy sector, with Occidental Petroleum topping the list after its stock gained 120% this year.

Additionally, the energy sector performed exceptionally well in a year when the stock market as a whole performed much weaker amid aggressive monetary policy tightening in the United States and Europe, and a surge in bond yields that drove investors away from equities. , hurting some of the best performers of the recent past.

Bloomberg noted in a recent report that the 21% drop in the S&P 500 is poised to become the biggest since 2008, the year of the global financial crisis. Only this time, it’s Big Tech that seems to have suffered the most – Meta alone has lost 60% this year – as well as crypto companies, which have taken additional hits from the digital currency and global litter meltdowns. collapse of crypto exchange FTX.

Related: China sets tone in year-end oil markets

Even Tesla hasn’t survived this year’s market turmoil unscathed: in recent weeks, the company has lost up to 70% of its value due to growing fears over demand for electric vehicles. Many called the price drop a long-awaited fix and a reality check, but Elon Musk assured Tesla employees that the company would eventually regain its most valuable status.

Meanwhile, energy stocks have collectively gained around 60% this year in the US alone, the FT notes in its report, and are looking increasingly appetizing for investors previously wary of oil and gas in because of their track record in emissions and dedicated ESG advisors saying that in the long term, the only good investment is ESG investing.

The ESG narrative has also started to unravel this year, with ESG funds significantly underperforming traditional funds, and evidence mounting that this is not a temporary problem but rather a trend in ESG investing because it puts political priorities above financial ones. ESG investing has also become the focus of attention in Congress and Republican-dominated state legislatures.

Against this backdrop, and with demand for oil and gas on the rise – a fact that even the International Energy Agency has not disputed – it was only a matter of time before investors remember their number one investing priority: making money.

With record profits and windfall taxes threatening future spending for increased production, oil and gas companies are more than happy to continue returning money to investors in both Europe and the United States. , but especially actively in the shale zone in the United States.

The U.S. shale oil and gas industry became a classic example of flexibility this year when it defied all expectations for a rapid ramp-up in production, preferring instead to stay on the sidelines of the production growth game. world oil company and instead return money to shareholders and exit production. growth for later.

But Big Oil is also making money from its record profits this year, which has prompted so many governments to claim windfall taxes because, ironically, Big Oil wasn’t using its record profits to produce more oil, which was exactly what those same governments wanted Big Oil to do before it ran into a fossil fuel shortage.

Thanks to a strong year in which many were forced to remember that the world was running on oil and gas, not wind and solar at the moment, the oil industry has become bolder in its reactions in the face of hostile governments and non-governmental organizations.

TotalEnergies has taken legal action against Greenpeace France for spreading “false and misleading information” about the big oil company’s emissions after Greenpeace published a report claiming that TotalEnergies underestimated its emissions.

Exxon targeted no one but the EU itself in a lawsuit just days ago in response to plans for a windfall tax on energy companies. According to the claimant, the tax would hamper investment. The plaintiff also claimed that the exceptional tax did not fall within the competence of the European Commission.

All in all, 2022 has been a surprisingly good year for the long-demonized oil and gas industry, especially financially, which is what any industry ultimately really wants.

By Irina Slav for Oilprice.com

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