Why Are Energy Stocks Up Today?

  • Various energy stocks are seeing significant buying pressure today.
  • This comes as oil prices rise amid talks of potential Russian oil price caps.
  • Supply and demand imbalances could be further impacted by this move.
Person holding the glowing world in their hands with icons with different types of energy. Energy stocks.
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Today, energy stocks are once again in focus for investors.

Following last week’s significant declines among many top energy names, various energy stocks like Devon Energy (NYSE:DVN) are popping today. Currently, Devon Energy is up approximately 7%, with a litany of other companies seeing substantial, market-beating gains.

These moves higher appear to be related to news out of the ongoing G7 meeting in Germany. Leaders from the richest economies in the world have gathered to lay out plans for the future. A potential price cap on Russian crude oil has been one of the key topics of discussion.

If some of the top customers of Russian crude are able to effectively manage this rollout, shifts away from Russian energy could accelerate. Additionally, even more economic pressure could be placed on Russia as a result of its war on Ukraine. Today, the market appears to be pricing in the effects of this cap, which would likely cause greater supply-demand imbalances in an already unequal market.

Let’s dive into whether these additional sanctions would have their intended effect.

Why Are Energy Stocks Up Today?

Energy prices have been coming down over the past couple weeks amid a confluence of factors that suggest the current supply and dynamics in the market may be short-lived. The key is concerns over slower demand as a result of what could be a global recession. That’s still a headwind many are pricing in right now.

However, reopenings in China and the potential for Russian price caps may be stronger headwinds for the energy market. It remains to be seen how effective these price caps will be. Still, there are worries that supply gaps could result in energy price increases in the developed world. For energy companies, these higher prices will be a boon to the bottom line — at least near-term.

The issue many point out with these price caps is that, unless India and China come along for the ride, cheap Russian oil and gas may simply be routed away from the West in favor of large Asian nations willing to overlook sanctions. This will make energy more expensive for the rest of the world, exacerbating the issue.

We’ll see how this situation plays out over time. For now, though, energy stocks seem to be key beneficiaries of this move.

On the date of publication, Chris MacDonald did not hold (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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.


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