Energy stocks have been the big winner of late as U.S. natural gas prices soar to a 14-year high. Not unnoticed, the Energy Select Sector SPDR Fund (NYSEARCA:XLE), which tracks energy companies on the S&P 500, is up five percent in just as many days. What’s behind the energy boom lately?
Some are attributing the rising natural gas prices to the rise in demand for air conditioning due to high temperatures throughout much of the country. Natural gas prices rose 7% Tuesday, closing at nearly $9.33 per million British thermal unit, or BTU. This represents the highest value since 2008.
Natural gas is still the dominant fuel source for much of the electricity in the U.S. As such, during the hottest and coldest months of the year, when Americans typically rely on their internal cooling and heating systems the most, the supply of natural gas tends to fall, putting upwards pressure on energy costs.
This is the logic behind the recent jump in energy stocks, in addition, of course, to the supply issues stemming from Russia’s invasion of Ukraine.
Energy Stocks Jump on Natural Gas Shortages
While the natural gas pinch puts the U.S. at risk of high prices, Europe is likely in a far graver dilemma, especially with the cold months quickly approaching. While the U.S. produces much of its natural gas, large swathes of Europe remain dependent on Russia for its energy. Europe’s natural gas prices are currently about seven times higher than in the states. Some countries are at risk of running out of gas this winter should exports fail to catch up with the surge in demand.
Energy companies have largely benefitted from the rise in natural gas prices. Over the past five days, Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), two of the most prominent energy companies on the S&P 500, are up 5% and 2%, respectively. Meanwhile, Texas-based gas miner ConocoPhillips (NYSE:COP) has climbed nearly 7% since Monday. Over the same period, the S&P 500 and Nasdaq have fallen 1% and 2.3%, respectively.
Energy will likely remain a constant concern as more households turn up the heat heading into the winter. The U.S. will likely be forced to expand its natural gas production in order to ease domestic supply constraints, as well as assist Europe as its navigates a future void of fuel from Russia.
On the date of publication, Shrey Dua 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.
