Will Energy Stocks Continue their Rebound in 2022?

Here’s what the energy stocks will depend on moving into 2022

The pandemic has been a disaster for oil and gas companies, which have seen substantially lower demand since the onset of COVID-19 and the resulting economic restrictions.

Stocks took a hit as a result.

It took a little less than one month from late February to March 2020 for the S&P 500 Energy Index to fall by over 55 percent. The index has moved up and down with the emergence of new variants ever since.

But that may all be changing.

New Developments Suggest a Continuing Energy Stock Rebound in 2022

Medical experts in the field of virology, including Dr. David Ho, are now suggesting that the Omicron variant may bring an end to the pandemic — not the virus itself, but the unmanageable nature of it.

This would transition us from pandemic to endemic.

“As all the public health folks have been saying, it’s going to rip right through the population,” Dr. Ho told CNBC. “Sometimes a rapid-fire could burn through very quickly but then put itself out.”

And while reaching natural immunity isn’t as plausible as immunity gained by vaccines — it doesn’t hurt to have both.

So, what does this mean for energy stocks?

Quite a bit.

The End of the Pandemic Will Be Met With Increasing Demand for Oil and Gas

An end to the pandemic wouldn’t mean we no longer have to worry about COVID.

However, it would mean that economic restrictions would probably lighten up, if not end completely.

It would also take away some fear that investors have of returning to lockdowns.

This would lead to a substantial increase in the demand for oil and gas as travel and business operations reach normal, pre-COVID levels.

Prices, Too, If Supply Issues Continue

Chris Wood, head of equity strategies at Jeffries, explained to CNBC that investments in fossil fuels have declined in recent years due to what he called “political attacks” leveled on the industry.

This lack of investment, he continued, will lead to shortages if and when the economy fully opens.

Predictions from both Jeffries and JP Morgan analysts suggest that the increase in demand for oil, coupled with shortages and supply constraints, will increase the price of oil to $150 per barrel by no later than 2023.

As of writing this post, the West Texas Intermediate (WTI) Crude Oil price per barrel sat at $79.50 per barrel — meaning that the price of oil is expected to nearly double in the next couple of years.

If these expectations are accurate, the valuation for oil and gas companies would increase dramatically throughout 2022 as the price of oil increases higher and higher.

Signs of a Rebound Already Emerging

The S&P 500 Energy Index has already reached pre-COVID levels heading into 2022 — and that’s with the Omicron variant spreading throughout the world.

This is good news for the entire industry… if it holds.

Cause for Caution

As with anything in life, things are never black and white.

To throw in some grey to this situation, look to no one else other than Ed Morse, head of commodities strategy at Citi Global.

Morse believes, contrary to the others above, that the supply issues from 2021 will not carry over into 2022 and that inventories will start to “grow around the world” by at least the second quarter.

For Morse, this means that oil prices will start “to go down rather than up” in 2022 — to as low as $60 per barrel.

These are all things to keep an eye on moving into the new year.