Almost one month into 2022, the supply chain crisis that defined the previous year isn’t showing any signs of improving. This poses significant constraints for many sectors but one in particular is showing signs of improving. A few months ago, oil and energy were the best performing sectors of the S&P 500, as oil stocks enjoyed a ride to the top. Months later, things are only improving. Today saw oil prices climb to their highest price since 2014. With Brent crude futures rising 77 cents to $87.25 per barrel, it has been an excellent day for oil stocks.
What’s Happening With Oil Stocks
Three of the biggest names in American oil drilling are in the green today, and a fourth looks set to join them. Exxon Mobil (NYSE:XOM) is up 0.88% for the day, while Suncor Energy (NYSE:SU) is just behind with gains of 0.85%. BP (NYSE:BP) has seen gains of 0.94%. While Chevron (NYSE:CVX) is still down 0.09%, it has been rising most of the afternoon.
All four stocks are also in the green for the week, with BP rising by more than 7% for the past five days. Three out of the four oil stocks are up by more than 20% for the month, with Chevron still up 14%. Indeed, it’s been a good year for the oil sector so far. With crude prices rising as they are, it’s easy to see why. Last week, John Jagerson and Wade Hansen of Strategic Trader touted the growth potential of the oil sector. They cautioned against service firms like Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BKR) but did not cite any of the aforementioned oil stocks as vehicles to avoid.
Why It Matters
The supply chain outlook has been tight for months. This week began with an unexpected development that stands to compromise it further. Yemen’s Houthi Militia issued an air strike on Abu Dhabi in the United Arab Emirates (UAE). Several fuel tankers exploded, killing at least three people. This isn’t the first time this particular group has targeted this region. It 2019, it issued a similar attack on a Saudi Arabian oil facility, causing a significant disruption in the country’s exports.
As Reuters notes, both the religious group and the government it is targeting have issued statements that imply further conflict may ensue. This type of escalation will only serve to tighten oil supply chains further, helping driving up prices and leaving U.S. miners to benefit. Oil was booming already, but these events will only help it expand, at least in the short-term.
It’s also worth noting that Exxon is taking steps to address its environmental impact. After significant pressure from investors, the oil giant is taking a massive step forward. Today it announced that it plans to “reach zero net greenhouse gas emissions from its operations by 2050.” While this is indeed a tall order, even taking some strides forward on the environmental, social, governance (ESG) front should help share prices rise. And Exxon seems to be taking action already. According to CEO Darren Woods, the end of 2022 will see 90% of the company’s assets include “road maps to reduce emissions and realize this net-zero future.”
What It Means
The short-term future of the oil sector looks good for U.S. drillers. While we don’t know what the future looks like for the UAE, tightening supply chains will likely continue to boost oil stock prices throughout the months ahead.
It is also reassuring to see a company like Exxon take action to raise its ESG score. After years of lagging behind some of its peers, such measures will open it up to investors concerned with social responsibility. Additionally, it may compel smaller oil producers to do the same, thereby helping oil stocks rise even more.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
