By DAMIAN J. TROISE Business Writer AP
Energy prices are skyrocketing in 2021 and oil and gas stocks are clearly the winners, but the losers may well turn out to be businesses and consumers.
The energy sector has far outpaced the broader market in 2021. Energy stocks on the S&P 500 are up more than 50%, compared to a gain of around 20% for the overall index. Devon Energy, Marathon Oil and Occidental Petroleum all more than doubled in value this year.
As energy stocks reap the rewards of high demand and lagging supply, other sectors of the economy are finding it harder to cope.
Soaring oil and gas prices add to broader inflationary pressures that are choking businesses and driving up costs. A wide variety of manufacturers find it more expensive to speed up their operations as energy costs rise. Airlines are being penalized by rising jet fuel costs as they attempt to rebuild profits. Consumers in the United States and around the world are facing increased pressure on their wallets due to rising energy costs.
Fertilizer maker CF Industries briefly shut down operations at two UK facilities in September due to high natural gas prices. Delta Air Lines CEO Ed Bastian warned investors earlier in October that fuel prices will hurt its ability to remain profitable until the end of the year. He expects a “modest” loss in the fourth quarter.
Consumers are already paying more for goods as businesses experience higher fuel and raw material costs and supply chain disruptions. More worrying for some analysts is what happens if people have to cut back on spending in order to pay for higher gas and home heating costs. Economic recovery depends on continued consumer spending, but higher energy costs could mean less discretionary spending on services, travel and goods.
âAt this point, the US consumer has been able to withstand rising energy prices,â said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors. “However, there is evidence that consumers are turning to credit cards to pay for the rising costs of basic necessities, including energy.”
The Energy Information Administration expects American households to see a 30% increase in their spending on natural gas this winter and 43% more on fuel oil. Americans are already getting pinched at the pumps, where average gasoline prices are up about 56% from a year ago, according to AAA.
Europe faces a natural gas crisis as winter approaches with insufficient supplies to meet demand. China also faces shortages and electricity is already rationed to industries in some places and a manufacturing slowdown there could potentially mean even higher prices for raw materials and consumer goods on a scale. global.
The disconnect between energy supply and demand is likely to persist, analysts say. OPEC and other suppliers remain cautious about increasing oil production and it is probably too late to increase natural gas supplies before winter. This will likely continue to support energy stocks as the big winners in the economy.