Why Investing In Oil And Gas Could Be A Good Idea Right Now
Respect to Charles Dickens notwithstanding, the oil and gas industry is becoming more and more of a story of two markets. It is the best of times and it is the worst of times, depending on where you look.
Professionals in the oil and gas business have been vocal about their displeasure with the state of the industry for the past several years. Oil and gas consumption has decreased, and prices have become more unstable as a result of the COVID-19-induced global slowdown.
The global economy has started to strengthen, and 2022 will be a huge year for oil majors. But any tangible sense of optimism has been muted for some due to worries of an impending recession, stagnating natural gas prices, growing production costs, and a particularly severe economic slowdown in China.
ESG triumphs in the end. Due to the increasing significance of ESG (environmental, social, and governance) norms, the fossil fuel business is under intense scrutiny. Advocates for environmental, social, and governance (ESG) have made significant strides toward their overarching objective of persuading pension funds, banks, insurance providers, and endowments to refrain from making new investments in exploration and drilling in addition to selling their current stakes in public oil stocks. As we will discuss in a moment, the ESG movement has been successful in shifting growth away from fossil fuels and toward renewables.
Inflation keeps going up. Rising expenses are a result of external variables like inflation driving up the cost of exploring new oil and gas reserves. Although the inflation figures are undoubtedly rising higher than they have over the past two years, the U.S. is only talking about "pausing"—that is, not completely stopping or even reversing—interest rate rises.
The state of the globe is unstable. In addition, the industry has had an extra difficulty because of geopolitical uncertainty. As the conflict in Ukraine continues, Russia's supply of gas and oil is disrupted, driving up costs in the European countries that depend heavily on Russia for their energy.
China is the second-biggest consumer of gas and oil worldwide, thus its economic problems continue to reduce demand and have a big influence on the market for these resources worldwide. Furthermore, worries about climate change have led to major regulatory obstacles for fossil fuels around the world as well as increased funding for the renewable energy sector, which is expected to at least partially replace them.
It would seem that this is the ideal moment to reevaluate Warren Buffett's maxim to be avaricious while others are afraid. It's obvious that fear is winning in the oil and gas sector. Let's look at some potential justifications for investing in oil and gas, though.
The law of economics is still in effect, the demand for energy is high and only going to get stronger, while the supply of energy is limited and will take some time to replenish.
