There’s Still Gold in Them There Wells

Don’t call it a comeback, they’ve been here for years.

Oil stocks are towering over the competition so far in 2021, with the trend of losing out to electric vehicles and renewables flipped on its head.

Hot Out the Gate

Just how hot is oil’s current run? To borrow from the cheesy old song, they might as well be walking on the sun.

• State Street Global Advisors’ XOP ETF, which tracks an equal-weighted index of U.S. oil and gas companies, has climbed nearly 40% this year. Among those companies, producers Diamondback Energy and Occidental Petroleum are up more than 50%.
• Of the 11 sectors on the S&P 500, energy has blown the others out of the water with a 15% higher return than second-place financials.
• Diesel, crude oil and gasoline have all gained more than 25% this year.

It’s only two months, but that’s a hotter start to the year than the Utah Jazz. As the Covid-19 pandemic wanes with more widespread vaccination, the good news should continue.

“As border closures and quarantine measures are eased, this should release pent-up demand for holiday travel and other types of recreational activity, boosting demand for oil,” said UBS Global Wealth Management CIO Mark Haefele.

Competition’s Payin’ the Price

By contrast, clean energy has taken a nosedive. Tesla, one of the driving stocks of last year, has fallen 20.6% from record high on January 8.

ICLN, which tracks an index of global equities in the clean energy sector, has fallen 7.1% this year, compared to a 4.1% gain for the Nasdaq Composite. Romeo Power, Plug Power and Hyliion Holdings are among the worst affected stocks.

the takeaway

With oil’s medium term fortunes reversed, the setback for renewables isn’t’ permanent: President Joe Biden will very likely increase U.S. investment in clean energy and has pledged to press for a national switch to electric vehicles.