Divergence Between Old, New Energy Stocks Persists In 2022
James Picerno | Jan 28, 2022 04:16PM ET
Green energy may be the future, but it’s still having a rough time in the present while shares of conventional fossil fuel companies extend last year’s strong bull run.
The sharp divergence for old vs. new energy stocks remains conspicuous year to date, based on a set of ETFs through yesterday’s close (Jan. 27). Energy Select Sector SPDR® Fund (NYSE:XLE), which holds the likes of Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and other old-line energy stocks, ticked up on Thursday to its highest level since 2014.
In sharp contrast, various slices of clean-energy industries are extending 2021’s losses this year. For example, Invesco WilderHill Clean Energy ETF (NYSE:XLE) yesterday fell to its lowest price in well over a year.
Clean energy remains a dirty word from an investment perspective in the new year, and PBW’s hardly alone among ETFs in this space in taking a drubbing from Mr. Market. Several flavors of so-called new energy companies are still on the defensive, including Invesco Solar ETF (NYSE:TAN), VanEck Low Carbon Energy ETF (NYSE:SMOG), and iShares Global Clean Energy ETF (NASDAQ:ICLN)—all of which have lost ground so far in 2022.
Meanwhile, XLE’s rally this year has been accompanied by year-to-date gains in SPDR S&P Oil & Gas Equipment & Services ETF (NYSE:XES), SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) and Invesco S&P SmallCap Energy ETF (NASDAQ:PSCE).
No one should write off clean energy’s longer-term prospects, or assume that old energy’s relative strength will remain a permanent feature. Indeed, some analysts are eyeing the losses in the former as buying opportunities. But for now, it’s premature to reliably declare an end to the recent downside momentum in green energy shares.
Get The News You Want
Note, too, that a combination of geopolitical risks and a recovering global economy are propping up prices in the fossil-fuel stocks. An added complication is that the world’s transition to cleaner fuels is hampered by a lack of rising supply to match increased energy demand. As two authorities on energy policy explain:
"Global investment in oil and gas is now at record lows as a result of uncertainty about the outlook for demand in a world more serious about climate and the terrible financial performance of the oil sector over the past decade."
This low level of oil and gas investment would be welcome if it were because demand was falling or investment in clean energy was rising at a rate to offset the fall in investment. But oil and gas use are both rising and projected to continue doing so for years. Investment in clean energy is rising, too, but not nearly at the rate to meet the growth in energy demand, not to mention the world’s climate goals.
Meanwhile, the current trends in energy will, at some point, go too far. Perhaps in the not-so-distant future, old energy will plateau and reverse while battered green energy shares will become unusually attractive on an ex ante basis and start to recover. We’re not there yet, but it’s only a matter of when not if.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.