Oil and gas stocks provide a long-term opportunity according to US bank JP Morgan, despite the likelihood of short-term market corrections after prices shot up last year in the wake of the Ukraine war.
Demand should increase this year “and beyond,” while supply risks, including from Russia, have not disappeared, outlined the brokers, suggesting inflated energy prices could reappear.
“The combination of recession, Fed tightening, US dollar weakening and heightened volatility at the front end of crude curve continue to sow the seeds for steeper contango,” it said.
These factors could also help decouple energy equities from underlying commodity prices, which have fallen amid global economic uncertainty.
This “supports our positive medium-term outlook for energy” stocks, it said, suggesting major European firms, such as TotalEnergies SE (NYSE:TOT, EPA:TTE), Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) look set to be winners.
Energy equities outperformed other sectors in 2022 following the hike in crude and gas prices, but a weaker start to the new year for commodities has seen energy stocks show “susceptibility,” which brokers say could continue in the short term.
JP Morgan added that risks to the sector, stemming from recession fears and a fall in the price of oil, should be “short lived” as inflation falls and China reopens its borders.