I’ve been bullish on energy since it was apparent that the world was going to open again from the pandemic.
Expectations of recession haven’t been fulfilled, and economies around the world are growing. And growing economies require more and more energy.
According to the U.S. Energy Information Administration, global liquid fuel consumption is expected to rise by 1.5 million barrels per day in 2023 and by another 1.8 million barrels per day next year.
Though a few countries are still buying oil from Russia, it remains a global pariah and much of the oil it’s producing is not being purchased by former customers. This means there is less supply for those abiding by a boycott while demand is increasing.
Brent crude oil is currently around $79 per barrel while West Texas Intermediate crude is at $73, as of this writing.
Barclays anticipates Brent to average $92 per barrel in 2023 and West Texas Intermediate crude to be $87 per barrel. The benchmarks are expected to rise in 2024 to $97 and $92, respectively.
Furthermore, energy stocks are in a long-term uptrend.
The iShares U.S. Energy ETF (NYSE: IYE) has been steadily climbing higher since the end of 2020. The top holdings in the exchange-traded fund (ETF) are Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX) and ConocoPhillips (NYSE: COP).
With demand for energy not likely to weaken in the future, this ETF should continue to move higher.
Lastly, energy stocks often pay big dividends. Major oil companies, like Exxon, pay more than 3%. Pipeline companies, like Plains All American (Nasdaq: PAA), often sport yields between 6% and 8%. And there are other energy companies whose yields even reach double digits.
Despite an increase in solar, wind and other sustainable power sources, oil and gas are still going to be needed for a long time to meet the world’s energy needs.
For growth and income, I believe energy stocks should be an important part of your portfolio.