After a decade of disappointment, 2021 was the year when energy finally bounced back and outperformed the broader market. Crude, recovering from the shock of the pandemic’s early days and massive oversupply, spent most of the year tracking upwards, bringing energy stocks along for the ride. XLE, long the poor relation amongst the sector ETFs, was a top performer, and even the moribund big oil stocks and battered shale producers soared.
So, what are the chances of a repeat in 2022?
Unfortunately, I would say they are slim, at least in the early part of the year.
As always, the price of oil will be the deciding factor in the performance of the sector and, despite a good start to the year in that regard, it is hard to be particularly bullish for the foreseeable future. The boost over the last few days has come mainly from the disruption in Kazakhstan threatening output there and despite, not because of, economic conditions and other supply factors.
That situation is significant, of course, but I find it hard to believe that the disruption will last. Kazakhstan is very dependent on oil revenue and whoever ends up in power, it will be important to turn the cash faucet back on as soon as possible. The importance of oil revenue to smaller producing countries is why these localized crises rarely have a lasting impact. If a country’s output is big enough to move the price of oil when it is threatened, then it is big enough to make restoring it a…