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While 2022 saw the broader stock market experience its worst performance since the Great Recession, energy provided one of the few bright spots on Wall Street. Higher commodity prices lifted the profits of oil and gas drillers, making the energy segment one of the best performers among industry categories.
Surging Out of the Pandemic
The gains for the energy industry marked a significant reversal from 2020, when oil prices plunged into negative territory as pandemic lockdowns triggered a brief recession. Shares of Exxon Mobil (NYSE:XOM), the biggest U.S. energy company by market value, dropped as much as 55% that year and the stock was removed from the Dow Jones Industrial Average (DJI) after 92 years.
Coming into 2022, rising energy prices helped to push inflation to multidecade highs. Oil reached a 14-year peak in the weeks after Russia’s invasion of Ukraine in February crimped global supplies.
Higher interest rates helped take oil off that peak. In March, the Federal Reserve raised the cost to borrow for the first time in more than three years in an effort to reduce inflation. Following that move, crude prices saw a moderation.
Even with oil falling from those early-year peaks, the sector as a whole remained sturdy the rest of the year. The iShares U.S. Energy ETF (IYE) in 2022 rose 50%, while iShares U.S. Oil Equipment & Services ETF (IEZ) jumped 55% and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) surged 47%. The SPDR Energy Select Sector ETF (XLE) jumped 53%, compared with a 19% decline for the S&P 500 (SP500).
| Energy Select Sector SPDR Fund (XLE) – Top Holdings | ||
| Name | Ticker | % gain/loss 2022 |
| Exxon Mobil Corp. | (XOM) | 74% |
| Chevron Corp. | (CVX) | 51% |
| ConocoPhilips | (COP) | 65% |
| EOG Resources Inc. | (EOG) | 49% |
| Pioneer Natural Resources Co. | (PXD) | 33% |
| Schlumberger NV | (SLB) | 69% |
| Marathon Petroleum Corp. | (MPC) | 77% |
| Occidental Petroleum Corp. | (NYSE:OXY) | 103% |
| Valero Energy Corp. | (VLO) | 64% |
| Devon Energy Corp. | (DVN) | 38% |
| Energy Select Sector SPDR Fund | (XLE) | 53% |
| Energy ETF comparables | ||
| iShares U.S. Energy ETF | (IYE) | 50% |
| iShares U.S. Oil Equipment & Services ETF | (IEZ) | 55% |
| iShares U.S. Oil & Gas Exploration & Production ETF | (IEO) | 47% |
Predicting the Energy Boom
As an eventful year comes to an end, here are Seeking Alpha editors’ picks for some of the best calls by columnists who shared their insights into energy stocks.
Contributor Bill Zettler in early January posted a column about the possibility that Exxon Mobil (XOM) would gain more than 30% during the year. In this regard, the prediction wasn’t bullish enough — Exxon (XOM) would rise more than 70% during 2022.
In making the call, Zettler pointed to the historical effect of oil prices on the exploration and production company’s stock, and to the strong demand for natural gas and liquefied natural gas (LNG) in Europe and Asia.
As for the supplies of oil, Zettler argued that a decline in the number of drilled-but-uncompleted (DUC) wells among energy-rich regions in North America would limit efforts to ramp up short-term production. He also said Exxon’s (XOM) plan to cut costs would be positive for the share price.
As it turned out, Exxon (XOM) in 2022 surged almost 74% as its earnings hit records in the second and third quarters of the year. In April, the company announced a plan to triple its share buyback program to $30 billion through 2023, providing short-term support for the stock’s price.
Looking elsewhere in the sector, Occidental Petroleum (OXY) was rated a Buy by contributor The Value Portfolio, which last January argued that the exploration and production company was poised to reduce debt. The prediction also included an increase in free cash flow, or the amount that its operating cash flow exceeds working capital and spending on fixed assets.
In addition to improved fundamentals, the Value Portfolio saw the possibility for rewarding shareholders with dividends and stock buybacks.
Occidental’s stock price more than doubled in 2022, receiving a strong endorsement as Warren Buffett’s Berkshire Hathaway (BRK.B) repeate increased its ownership interest in the company. The accumulation of shares led to speculation that Buffett would acquire the entire company — a mere two years after dumping shares during the onset of the pandemic.
In another prescient call for the energy industry, Seeking Alpha contributor Laura Starks last January recommended buying shares in Marathon Petroleum (MPC), saying that the independent refiner traded at a discount compared with peers. She also said Marathon (MPC) was in a good position to continue buying back stock with the proceeds from its sale of Speedway gas stations to convenience-store chain 7-11 in 2021.
Marathon (MPC) soared 77% in 2022 as its quarterly profits and revenue beat expectations on strong demand for oil products and constraints on refining capacity. Refiners in the United States are unlikely to expand that capacity, given that oil prices have come down from the 2022 peak and refining facilities can take decades to recoup the costs to build them.
A Look Ahead
Oil prices have come well off their peaks since the post-Ukraine surge. From a level above $130, crude closed 2022 below $81.
Still, many of the biggest energy names have held most of their earlier gains. For instance, XOM touched a 52-week high of $114.66 in November. It closed out the year at $110.30 — compared to a 52-week low of $61.21.
Looking ahead, some still see potential for the sector, even with crude off its highs. For instance, SA contributor The Value Portfolio argues that XOM still “has value in a low oil price environment,” saying that the oil giant “has numerous avenues to provide substantial shareholder returns highlighting how it’s a valuable investment.”
However, there are skeptics as well. On that side of the ledger, SA contributor David Alton Clark said XOM “is running out gas,” contending that “the stock’s rally may have peaked.”
