Is the ‘energy trade’ dead already?

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Written on Jul 6, 2022

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Paul Sankey explains why the energy trade is far from over yet.
He expects oil prices to remain elevated in the balance of 2022.
SPDR S&P Oil & Gas ETF is down more than 30% since June 7th.

“XOP” is down more than 30% since June 7^th but that does not mean an end to the “energy trade”, says Paul Sankey. He’s the Lead Analyst at Sankey Research.

Oil prices to remain elevated in the coming months

Sankey has reason to believe the oil prices will remain elevated in the balance of 2022. Naturally, therefore, he expects equities to benefit as well. On CNBC’s “Power Lunch”, the analyst said:

The back half of the year will be very bullish, especially when the strategic petroleum reserve stops being pulled down, which will be in October; when we go into winter, when we can easily see a major energy crisis particularly in Europe.

Oil is now back under $100 a barrel but the Ukraine war will also keep the upward pressure on prices moving forward, he added.

Demand for conventional energy is not going away

According to Paul Sankey, electric vehicles is a story that’s ten to fifteen years out. In the near-term, he said, demand for conventional energy will remain strong that warrants owning the oil and gas stocks.

We like refining, we like the LNG plays and we’re sticking with this trade because the long-term mega themes all remain in place. I genuinely think there’s real value in big oils. These will come back strongly because demand is not going away.

Last week, Exxon Mobil Corporation (NYSE: XOM) said higher margins could see its profit hit a record in fiscal Q2. It expects a massive $7.4 billion sequential increase in operating profit.