With just a few trading days left in 2020, analysts are taking stock of the best and worst in stocks that this very unusual year has brought. The pandemic and the resulting collapse in oil prices slammed the already weak energy sector that has been the worst performer of all sectors this year. Vaccine development and the rollout that followed shortly thereafter lifted the shares of companies in the oil and gas sector in the fourth quarter. Even so, the energy industry is still the biggest underperformer, with many companies losing billions of U.S. dollars from their market valuations.
Some of the energy industry’s biggest names have been among the worst energy performers in 2020. And no single sector of the oil and gas industry was spared the 2020 bloodbath, from integrated oil and gas to exploration and production, pipeline transportation, refining, and oilfield services.
Energy stocks did rally in November and most of December, fueled by hopes that vaccines will allow a return to some kind of normality next year. Nevertheless, the S&P 500 index’s energy sector plunged 38 percent this year as of December 22, data from Yardeni Research showed.
This is compared to the overall performance of the S&P 500 index, which has gained 14.1 percent this year. The second-worst performer among sectors, financials, lost just 7.4 percent—making energy the biggest loser by a country mile.
Earlier this year, investors soured on energy stocks after oil prices collapsed and it became evident that global fuel demand would not return to pre-pandemic levels for at least another two years.
The vaccine-supported oil and energy stocks rally showed that at least some investors believed energy would be a big (if not the biggest) beneficiary of a return to growth, whether that is economies returning to growth or simply oil demand returning to growth.
Prior to the first vaccine breakthrough announcement from Pfizer and BioNTech on November 9, the oil and gas industry was not only the biggest market loser of 2020, but it had also become the worst performer on the market—ever. The energy sector had lost 52.5 percent between January and October, with losses the worst in any sector since 1928.
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Since the end of October, however, the energy sector has outperformed all others, as well as the S&P 500 index, surging by 27.1 percent versus a 12-percent rise of the broader index.
Despite the rally in the fourth quarter, which sees U.S. energy stocks enjoying their best quarter since 1989, the energy sector is still the biggest underperformer, and some of the biggest names in the industry have significantly underperformed even the underperforming energy sector.
Ryan Downie of The Motley Fool has compiled a list of some of the worst performers.
The world’s top oilfield services provider, Schlumberger, has rallied 23 percent in Q4. Nevertheless, the oilfield service provider has lost nearly half of its market valuation year to date, its shares are down 47 percent this year, and its market capitalization is down by more than US$20 billion to just below US$30 billion as of December 22.
Schlumberger and other oilfield services and equipment providers have felt the oil price and oil demand crash the worst as upstream companies slashed their drilling budgets.
U.S. shale firm EOG Resources has been another big underperformer this year, losing 42 percent of its value, or nearly US$20 billion.
Supermajor ExxonMobil is also down 42 percent year to date, and it has lost more than US$110 billion in market value, which stood at US$174 billion as of the end of trade on December 22. This year, Exxon was even kicked out of the Dow Jones Industrial Average index, where it had sat comfortably since 1928.
Refining giant Phillips 66 has also had a tough year, losing 40 percent, or around US$20 billion of its value. Shares in pipeline giant Kinder Morgan have also slumped by 40 percent year to date.
Despite these dramatic declines in market performance, the energy sector could be headed toward recovery next year, building on the fourth-quarter rally as value investors are likely to be chasing undervalued stocks, analysts say.
“This underperformance combined with low equity valuation could make energy stocks the best segment in global equities in 2021,” Peter Garnry, Head of Equity Strategy at Saxo Bank, said at the end of November.
“Growth investors no longer exist in the sector because there’s terminal demand risk in the future, and value investors are ruling the day,” Matt Portillo, an analyst at investment bank Tudor, Pickering, Holt & Company, told the Financial Times this month.
By Tsvetana Paraskova for Oilprice.com
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The proof is that the vaccine breakthrough and the rollout that followed shortly thereafter lifted the shares of companies in the oil and gas sector in the fourth quarter to their highest levels since the onset of the pandemic. With wider vaccination and also a wider easing of the lockdown one would expect oil and energy stocks to surge even higher than the pre-pandemic levels. The evidence is there for everyone to see how China’s oil demand and crude oil imports broke all previous records and surged far above 2019 because of an earlier exiting from the lockdown.
Supermarkets' stocks flourished because people need food even when they are locked down inside their homes. Energy stocks flourish when normal economic activities including air travel and the transport system resume normally.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Sure feels like gold prices are about to double in US Dollar terms tho. Might see the price of a postage stamp soar despite no one using much in the way of direct mail anymore. "Fully autonomous vehicles" appear to have suddenly been realized. There is nothing revolutionary about a fuel cell battery or hydrogen charging infrastructure in the USA. If I didn't know any better I'd say the US energy Industry was trying to destroy the US Dollar.
Anyhow freight rates of $100,000 us dollars per day of a liquid propane gas tanker is a lot of money in the shipping Industry. Container rates have also soared as has the price of steel and aluminum. As bad as US energy names have been hit US materials names like Alcoa and US Steel have been hit far harder. At some point that all must change tho as the USA remains the largest food producer on Earth. "The human race has to eat." As do all those chickens, goats, cows, pigs, etc. The United States is not Great Britain in lacking real estate let alone arable Land nor lacking the logistics to carry every good imaginable over Continental and even Intercontinental distances.
That includes oil and distillate fuels.
It is odd that US oil exports have plunged tho. It's dirt cheap to ship crude oil. Same said be true of diesel fuel in point of fact. If the US Dollar was worthless US imports of oil would be plunging.