Energy giants $Exxon Mobil(XOM)$ , $Chevron(CVX)$ and $Marathon(MPC)$ recently delivered Q3 reports that exceeded expectations. From a comparison of revenue and market expectations, they beat the weak tech companies.
Strong results and historically high stock prices make energy stocks shine in 2022.
In the $S&P 500(.SPX)$ components, for example, energy stocks occupy the top 10 gainers. Warren Buffett's position - $Occidental(OXY)$ is the best performer with a 145% jump during the year. Other energy stocks also had gains of more than 70%.
Compared to the NASDAQ -33% for the year and the poor performance of star tech stocks, energy stocks were the big winners this year.
1. Energy companies highly connected with oil prices
However, the good times for energy stocks are nearing an end.
The performance of energy stocks is generally influenced by 2 factors: production and energy prices.
Since it is not easy to increase or decrease production, price volatility tends to have a greater impact on energy companies.
In 2022, oil and gas prices soared due to the mismatch between crude oil supply and demand and the Russian-Ukrainian war, and energy companies profited as a result.
However, after the third quarter, oil and natural gas prices have fallen back considerably from their peaks.
2. $Exxon Mobil(XOM)$'s 2022 revenue could be the peak for next few years
In the case of $Exxon Mobil(XOM)$, Bloomberg analysts' median forecast for fourth-quarter sales revenue was $96.8 billion, a 9% decline from the third quarter.
On a more pessimistic note, analysts believe that Exxon Mobil's 2022 revenue could be the peak for the next few years.
Is this scenario likely to happen?
Historically, Exxon Mobil's revenue and net income stagnated for years after the financial crisis in 2008. It is difficult for energy companies to sustain growth.
data from XOM's earnings; compiled by Value_investing
Looking at the price of $Light Crude Oil - main 2212(CLmain)$, the current price of $90 is at an all-time high. And Exxon Mobil shares have risen and fallen almost in tandem with the price of crude oil. The core of whether energy stocks can still go up is the price of oil.
data from XOM's earnings and tiger trade; compiled by Value_investing
3. Hare to predict the oil prices, but $90 is unsustainable
For example, Goldman Sachs previously predicted that the average price of oil in 2022 can reach $ 135. Looking back, the highest price of WTI crude oil is only $133.46.
Its August forecast predicted oil prices of $110 per barrel for the third quarter and $125 for the fourth quarter. A month later, Goldman Sachs said oil prices would reach $100 per barrel in the fourth quarter.
While it is extremely difficult to predict the future, crude oil prices have historically stayed above $100 for a short time.
High oil prices are blamed by people and government. US President Joe Biden repeatedly slammed Exxon Mobil for making a fortune from high oil prices.
While the possibility of higher oil prices cannot be ruled out, the risk to investors will be much higher. Once oil prices enter a downward cycle, energy stocks may have to wait another few years or even a dozen years to return to record highs.
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