The situation in Ukraine, which has lasted for more than three weeks, has sent international energy prices soaring across the board, which were already buoyed by supply shortages.
International oil prices climbed to $139 a barrel earlier this month, the highest since 2008, and natural gas prices also recently rose to record highs.
The "full bloom" of energy prices has made companies and investors in many fields around the world miserable, but the long-silent U.S. energy stocks have benefited from it, leading U.S. stocks to rise again after many years.
The best-performing stocks in the "top list" this year
According to FactSet data, U.S. energy stocks have led the U.S. stock market by a huge margin in 2022, with a cumulative gain of up to 37% as of last Friday.
So far, of the 11 sectors in the S&P 500, only the energy sector and the financial sector have recorded gains this year, and the cumulative gain in the financial sector is only 1%.
Over the same period, the S&P 500 fell 5.3% overall.
At the same time, of the 25 best-performing stocks in the S&P 500 this year, 17 belong to the energy sector, accounting for nearly 70%.
Among them, Occidental Petroleum Corp. shares have doubled this year, Halliburton Co. shares are up 62% and Chevron Corp. shares are up 40%.
While leading U.S. stocks higher, energy stocks also offer investors attractive dividend yields.
The dividend yield for energy stocks is 2.9%, compared with 1.3% for the S&P 500 as a whole, while the yield on the benchmark 10-year U.S. Treasury note has now climbed to 2.368%.
In addition, energy companies have also begun to accelerate share buybacks after U.S. regulators allowed the resumption of share buybacks last year.
Share buybacks in the energy sector nearly tripled year-over-year last year, outpacing the 70% year-over-year gain for the S&P 500 as a whole, according to the S&P Dow Jones Index.
Exxon Mobil Corp. also announced a $10 billion buyback plan in October after a five-year hiatus.
Shares of Exxon Mobil have risen 34% this year.
While energy stocks rallied, big tech stocks, which had led U.S. stocks for much of the past decade, turned down.
Investors have been selling stocks of overvalued tech and other growth companies this year amid concerns about their prospects in a Fed rate hike cycle.
The tech sector of the S&P 500 has fallen 9.8% this year through Friday, according to FactSet.
Nick Giacoumakis, president and founder of NEIRG Wealth Management, said: "Now, a new generation of FANG has been born, referring to fuel, agriculture, natural resources and gold. (gold).”
He revealed that his firm is betting on the prospects of the energy sector by buying both energy stocks and energy-based exchange-traded funds (ETFs).
He expects the average trading price of international oil prices to exceed $120 a barrel in 2022.
International oil prices turned lower on Thursday as the United States and the International Energy Agency (IEA) said more crude oil reserves would be released if necessary.
In today's Asia-Pacific trading session, due to the resurgence of concerns about supply disruptions, Brent crude oil futures rose again, up 0.16% to $115.48 a barrel as of 11:00.
A few weeks ago, the IEA had released 60 million barrels of oil reserves, but failed to cool high oil prices.
Experts: Beware of a rapid drop in oil prices
The energy industry has experienced boom and bust cycles over the past few years.
Therefore, even after the recent sharp rebound, the impact of the energy sector on the US stock index is still limited.
The energy sector currently has a weighting of 3.9% in the S&P 500, well below its peak of more than 15% in 2008.
A few years ago, overexploitation by U.S. shale producers led to falling energy prices, prompting many investors to trim positions in energy stocks.
At the same time, the global focus on investment in clean energy, ESG and other areas has further exacerbated the pain of the energy industry.
Fund managers tend to steer clear of fossil fuel producers and include green energy companies in their portfolios.
Since then, the emergence of the new crown epidemic has once again hit the demand for energy.
Affected by this series of shocks, the energy sector has underperformed the broader market in eight of the past 10 years through 2021.
However, the situation has changed since last year.
Last year, the U.S. economy recovered from the pandemic and oil producers worked together to drive a rebound in energy prices, making the energy sector the best-performing sector in the S&P 500 last year.
Federated Hermes has been overweight energy stocks since the third quarter of 2020, betting that oil prices will rebound as the economy recovers, said Linda Duessel, senior equity strategist at Federated Hermes.
Still, at the time, she didn't expect Brent to break above $130 a barrel.
Dussel's strategy is also the market consensus for some time.
Investors flocked to energy-focused commodity mutual funds and ETFs for the sixth week in a row through March 16, data from Refinitiv Lipper showed.
Investors also pumped $1 billion into energy equity funds in a single week earlier in March, recording their biggest weekly inflows in a year.
Meanwhile, investors shorting the energy sector have lost $13.7 billion this year and have had to rush to pare short positions, according to technology and data analytics firm S3 Partners.
However, market participants have also begun to warn that if oil prices climb too high and too fast, consumers may adjust their spending habits and reduce their demand for oil, thus causing oil prices to resume their decline.
Dussel expects oil prices to fall to around $100 a barrel once traders fully digest the supply shock from sanctions on Russia in Europe and the United States.
"(Because) the recent rally has been too fast," she said.
JPMorgan's forecast is very similar.
The bank said: “After the escalation in Ukraine, oil prices soared to more than $100 a barrel, leaving consumers feeling strapped, but high oil prices are clearly not the only demand-destroying force in the world at the moment. The spread of the Chrono variant has had a direct impact on oil demand that outweighed the rise in oil prices.” As a result, JPMorgan lowered its oil demand forecast for the second quarter by 1.1 million barrels per day (bpd) and for the remaining two quarters of the year. about 500,000 barrels per day.
On the supply side, JPMorgan said its base assumptions included that the oil market's "extreme aversion" to Russian crude would subside and that "stranded" Russian oil production would fall in April after hitting a high of 3.5 million bpd in March. It fell to 2 million bpd in the month and then further to 1 million bpd.
Combining its forecasts of falling demand and supply recovery, JPMorgan expects Brent to average $114 a barrel in the second quarter of this year, before falling to $101 a barrel for the rest of the year.