The pandemic highlighted the importance of technology in our lives. Everyone agreed that technology companies came out stronger and their market capitalization increased.
What many did not expect was that, after the low oil prices during 2Q 2020 (even reaching negative prices in the Futures market), energy companies would not only skyrocket on the stock market, but their profits would too. In the following graph we can see the earnings made in the last 12 months of both sectors.
Why oil companies grow more than technology companies?
With the planes on the ground, the factories stopped and the population confined, the drop in demand pushed the price down. Months later, when prices stabilized, lower production and the reopening of the economy triggered an upward trend price.
But oil is necessary: currently, in the world energy mix, oil accounts for more than 30% of the total, which makes it essential for now.
Fuente: International Energy Agency. https://www.iea.org/data-and-statistics/data-browser?country=WORLD&fuel=Energy%20supply&indicator=TESbySource
Time to invest in the energy sector?
One thing is for sure: the best rally was almost two years ago. Although it is not ruled out that the price of crude oil will continue to rise due to the low investment in capex and the latent demand until the full reopening of the world economy. As we can see in the graph, the rally from covid lows has been more than 100%
With oil above 80 dollars, a comfortable price for many producers, the incentive to increase supply is evident, so current valuations leave little room for a rise in energy stocks. In addition, if we add up the poor prospects for the sector in the long term due to all the ESG factors that play against it, it does not seem like the best idea.