Global energy stocks are still only 5.8% of global market cap, compared to a long-run average of 8.2% (based on the S&P 1200 indices).
Global tech stocks still 21.1% of global market cap, compared to a long-run average of 14.2% (based on the S&P 1200 indices).
Windfall taxes and price caps proved unhelpful in the past and supported oil prices rather than deflating them.
“It would have seemed inconceivable in 2020 when oil prices briefly went negative and technology, online and social media giants gave many people something to do during lockdowns, but in 2022 energy stocks are proving to be the big winners and tech stocks the big losers,” says AJ Bell investment director, Russ Mould. “Even so, financial markets still seem sceptical that this is the new normal. Investors are still placing more faith in tech than they are in oil and gas, which suggests that if hydrocarbon prices stay firm then energy stocks still have the potential to surprise on the upside.
“Using the S&P Global 1200 indices as a benchmark, energy stocks still represent just 5.8% of total stock market value. That shows a big recovery from the post-pandemic lows of 2.5% in 2020 but still trails the 8.2% average since the turn of the century and miles below the 13.9% high that prevailed as oil hit $147 a barrel in summer 2008. This shows three things.
“First, the best time to buy oil stocks has been when the oil price has collapsed and sentiment is firmly against the sector.
“Second, the worst time to buy oil stocks has been when the oil price has been gushing higher and sentiment is firmly with the sector.
“Finally, the markets remain sceptical that hydrocarbon prices will remain elevated, as the globe looks to embrace, alternative, renewable sources of energy and move toward a net-zero world. There is less talk now than there was about oil and gas fields being stranded assets that will prove to be worth less than thought but the relative value of oil and gas equities is not as high as you might think and history would suggest, given the oil currently trades above $90 a barrel and natural gas around $6 per MMBtu.
“Again, the shift toward renewables could indeed dampen demand for oil and gas over the long-term and from an ecological point of view, among others, science clearly states this would be good for us all.
“There are other threats to oil and gas companies, which could weigh in the near-term. A global recession could hit demand for crude and refined products, while governments could seek to impose price caps or more onerous taxes on profits. A peaceful solution to the war in Ukraine could end sanctions on key suppliers and increase available output, while a defrosting of relations with Venezuela and Iran could have a similar effect.”