Big oil stocks like Exxon are at all-time highs. Is now the time to trade energy stocks? If so, do you expect prices to keep going up or start to fade as we roll into 2023 and the nation falls into a recession? For that matter is it a good time to get into long term - investing in the energy sector. 2022 has been a terrible year for the market overall but a great year for big oil. For example, Exxon was trading at $61 a share a year ago and in mid-November of 2022 goes for $111 a share. As supply issues caused by the war in Ukraine continue will there be a fall in oil and natural gas prices any time soon. What then?
S&P Energy Sector 2022
While the S&P 500 is down 18% for 2022 the energy sector is up 65%. Anyone who bought the index in January has got to be very happy today. However, the course of the index has not been even throughout the year. The index reached almost to its current level in June before losing more than half of its yearly gains, rose a bit, fell again, and then rallied from October into November. Performance for the year has been great for long term investors who got in early and stayed but the energy sector has provided ample opportunity for options traders to profit from both rising and falling prices.
As Europe uses less and less oil and natural gas from Russia it has ramped up its imports of liquified natural gas from the USA from where 70% of LNG cargoes head to the UK or EU. Prices are up and profits are soaring. Of course that is what we see in stock and index prices. Three things could affect the quantity of oil and gas the US producers are selling and getting paid for at high prices. The war in Ukraine will likely last for some time but it will not be eternal and at some point, normal trade relationships will be reinstituted. At some point in the future prices distorted by war will come down. In the nearer time frame the US is likely to slide into a recession in 2023 by the current definition of recession although we contend that the US is in a recession already if they had not rewritten the rules for political reasons. And over the long term the US and other industrialized societies will steadily increase their reliance on renewable energy sources like wind, solar, and hydroelectric. That in the longest term will be what bring energy prices down. As such big oil and gas stocks are likely to be a great deal with steadily higher prices over the next year or so with tapering off happening due to recession. At that point long term investors who follow long trends will pivot out of these stocks as they head back downward.
Trading the Energy Sector in 2022 and 2023
While the are both positive and negative factors that will weigh on energy prices and the shares of energy companies over the years, short term prices will rise and fall based on market sentiment and market sentiment will evolve as traders watch news such as the -Saudis not pitching in and raising production but rather cutting back to jack up prices (and support their Russian friends). At Top Gun Options we have demonstrated again and again that we can make money in both up and down markets and that by routinely hedging risk we can avoid the occasional large losses that plague all too many traders. If you are interested in profiting by trading options on the energy sector or any aspect of the stock market, consider joining one of the trading squadrons at Top Gun Options where we potentially print money in but up and down markets.