A little more than a year ago, the crude oil sector appeared to be on the edge of a precipice. Because the novel coronavirus basically shut down global economic activity, no one wanted to make good on their energy contracts. As a result, oil prices dipped below $0 for the first time in history. Naturally, this was bad news for many energy stocks.
Fast forward to the present, though, and the U.S. and the rest of the world have generally enjoyed a recovery. True, we’re still not out of the woods. In particular, the new Delta Plus variant of Covid-19 has sparked concerns. Still, the bottom line is that energy stocks could be back in business.
This narrative also recently received a major boost when Bank of America analysts forecast that a strong recovery of demand outpacing supply in the next several months could lead to oil prices hitting $100 per barrel next year. This would have very positive implications for energy stocks. Better yet, other evidence suggests that oil reaching triple-digit prices is a realistic proposition due to phenomena like “revenge spending.” That is, people who have been denied purchasing goods and services by the pandemic will now do so in full force. This increased activity supports the case for energy plays.
Finally, though, the federal government has also become involved in energy’s recovery narrative in an unprecedented way. Both former President Donald Trump and President Joe Biden have facilitated direct payments to the American people. So, with funds saved up for “revenge” and now some “free” money from Uncle Sam, spending should surely increase. That will eventually trickle down to these energy stocks to buy.
- Exxon Mobil (NYSE:XOM)
- Phillips 66 (NYSE:PSX)
- TotalEnergies (NYSE:TTE)
- NextEra Energy (NYSE:NEE)
- Bloom Energy (NYSE:BE)
- Marathon Oil (NYSE:MRO)
- Lukoil (OTCMKTS:LUKOY)
That said, while oil prices could definitely hit $100 next year, keep in mind that this story could be more of a slow burn in 2023 and beyond. It’s yet to be established whether this increased demand is the new normal or just a one-off phenomenon like retail revenge. Thus, even with the current bullishness toward energy, it’s best to stay vigilant.
Exxon Mobil (XOM)
Source: Michael Gordon / Shutterstock.com
For the most part, 2020 was not a good year for anyone. That has also extended to several corporations, including Exxon Mobil. Historically, XOM stock has been one of the more reliable energy stocks to buy because of its massive economic and political influence. However, this name lost its luster a few years after the onset of the Great Recession.
But 2020 was particularly tough for Exxon. Not only did the industry suffer a catastrophe from the pandemic, but XOM also suffered the ignominy of being kicked out of the Dow Jones Industrial Average. Today, the only pure-play energy stock on that venerable list is now Chevron (NYSE:CVX).
Then again, stocks like Exxon may start to perform better soon because (presumably) much of the bad news has already been reflected in the equity unit’s price. Generally, this dynamic has proven true for XOM, which has been on a roll since hitting a low point late last year.
Moving forward into 2022, I expect momentum to be strong for XOM stock due to the correction-to-the-upside effect for consumer demand.
Phillips 66 (PSX)
Source: Jonathan Weiss / Shutterstock.com
A result of ConocoPhillips (NYSE:COP) spinning off its midstream and downstream assets, Phillips 66 will be a direct beneficiary of the recovery in consumer demand — assuming, of course, that the trend stays robust. In the United States, Phillips 66 markets “gasoline, diesel and aviation fuel through approximately 7,550 independently owned outlets in 48 states.”
Along with its namesake, this pick of the energy stocks commands many other brands like Conoco and 76. In other words, as traffic volume picks up, so should the price of PSX stock. And, looking at various data points from the Bureau of Transportation Statistics, this is definitely one of the energy stocks you want to keep on your short list.
For instance, the number of people that are choosing to stay home should gradually decline to pre-pandemic norms. Additionally, total trips taken in 2021 are coming close to matching levels seen in 2019. And finally, positive comparisons in air travel bode well, especially for companies like Phillips 66 which cater to both types of travel.
While most of this discussion about energy stocks to buy focuses on the North American markets, it’s important to realize that demand from a consumer rebound impacts many other regions as well. One of the more prominent of these regions is western Europe. This bodes well for TotalEnergies, a French multinational integrated oil and gas company.
Primarily, Europe is home to many of the most desired tourist destinations — and France arguably owns the flagship with Paris. As you probably know, when the Covid-19 crisis first started spreading across the world, governments everywhere imposed strict lockdown measures. That turned always-vibrant cities like Paris into veritable ghost towns. Of course, that hurt demand for fuel, which likewise briefly devastated TTE stock.
Now, though, these same hot destination spots should benefit from the “revenge spending” narrative. According to data from TomTom.com, traffic levels compared to 2019 have rebounded significantly in Paris since early April.
NextEra Energy (NEE)
Source: madamF / Shutterstock.com
Because we’re talking about oil prices hitting $100, this discussion naturally focuses on energy stocks that are tied to the fossil fuel industry. Nevertheless, you shouldn’t ignore those companies supporting renewable energy initiatives, such as clean energy stocks like NextEra Energy.
For one thing, it’s no longer politically and socially palatable for fossil-fuel specialists to simply focus on oil alone. Even the companies that are mostly known for their “dirty fuels” have started transitioning to cleaner alternatives. Therefore, oil at triple digits shouldn’t hurt the case for NEE stock and its ilk.
Indeed, the rise of oil prices could end up supporting renewable energy stocks to buy. For instance, one of the biggest sources of frustration in the last run-up of the oil market was the lack of vehicular options. Today, companies like Tesla (NASDAQ:TSLA) and Toyota (NYSE:TM) (through its Prius lineup) are performing very well due to higher oil prices.
Basically, the more expensive oil becomes, the more attractive electric vehicles (EVs) will be. It seems that nothing will support a broader transition to EVs than pain at the pump. So, once $100 oil arrives, you can rest assured that people will be rethinking their driving choices.
Bloom Energy (BE)
Source: Kaca Skokanova/ShutterStock.com
Another name to consider for the bigger-picture narrative behind energy stocks is Bloom Energy. From a political (and even moral) perspective, many people intuitively understand the need for clean-energy infrastructure. But the lingering problem with this sector has been viability — specifically, how to implement said infrastructure given the intermittent nature of renewable energy.
Obviously, the wind doesn’t blow perpetually (unless you’re in Chicago) and the sun doesn’t shine indefinitely. Once these sources fade out for the day, the grid has to rely on other means of power. This is where the investment case for BE stock takes an intriguing turn, thanks to its underlying microgrid solution.
Leveraging its hydrogen fuel cell technology, Bloom Energy offers energy storage and power distribution solutions that are always available for its clients. Therefore, should the main grid go down, businesses can continue operating. That represents a massive capacity advantage.
What’s more, renewable solutions play a pivotal role in energy independence. Without getting too deep into the topic, U.S. relations with many countries are presently frayed. Therefore, it’s imperative that we have access to multiple power sources. That need inherently benefits BE stock.
Marathon Oil (MRO)
Source: Jonathan Weiss/shutterstock.com
Back in the worst of the Covid-19 outbreak, I didn’t want to have anything to do with oil-related energy stocks to buy. With nothing but bad news pouring in, the contrarian case for fossil fuels seemed way too risky. Well, now this is one of those cases where not only was I wrong, but I’m glad to be wrong.
You see, if I was right about the oil industry, we would currently be looking at some very dire circumstances. To be fair, I’m still hesitant about many aspects regarding the recent economic recovery. Hopefully, we’re at the tail end of this crisis, but it’s still not over. Having said that, the American consumer has generally responded better than I had predicted.
Thus, if you want to take a speculative shot on independent energy firms like Marathon Oil, I’m not nearly as skeptical as I once was. Basically, if you have a short-term time window, MRO stock will most likely do the trick. That’s because demand could overcorrect to the upside as the “revenge spending” phenomenon grips America.
Easily the most controversial name on this list of energy stocks, Lukoil has always been a tough conversation piece. But it’s even tougher now because of the political climate. Unless you’ve been deliberately avoiding the news — which I can’t blame you if you have — you probably know that relations between the U.S. and Russia (this company’s home turf) aren’t exactly pleasant right now.
Still, if you put this to the side, I think investors could enjoy significant profitability with LUKOY stock. During the run-up to the 2020 election, some conservatives embraced the idea that a vote for President Joe Biden was roughly akin to a vote for Beijing. But in my opinion, the real benefactor to Biden’s victory is Russia. As the Pew Research Center reported, it’s anti-China sentiment that dominates world discourse right now, not anti-Russia sentiment.
In my view, this gives Russia a green light to export its vast energy resources to international partners. Further, oil prices are rising just at the perfect time for Lukoil. Granted, this is a tricky narrative, so you want to trade extremely carefully. But if you don’t mind controversy in your portfolio, LUKOY stock may treat you well.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.