Oil and gas stocks to keep allure for some time despite devastating UN climate report


Recent warnings that the world must wean itself off fossil fuels, and fast, have had little effect on the stock prices of energy companies.
Oil and gas stocks to keep allure for some time despite devastating UN climate report
Shares of energy companies ended the week little changed after the UN's alarming climate change report. File picture.
The sobering UN-backed report on global warming last week prompted a lot of hand-wringing from governments and the general public about fossil fuels. The response from investors in the oil and gas industry? A big shrug.
Shares of energy companies ended the week little changed. Oil prices rebounded from a selloff earlier in the month, despite the warnings that the world must wean itself off fossil fuels, and fast.
Investors must now weigh the industry’s soaring revenue and improving profitability against the long-term prospect of a carbon-light world. The key is how long it will take for countries to phase out internal combustion engines in the coming decades, and what kind of supply-and-demand imbalances occur along the way.
“Investors, for the most part, are not buying into the 'sky is falling' climate change narrative,” said Martin Pelletier, portfolio manager at Wellington-Altus Private Counsel. 
There is no doubt a transition towards renewables, but the pace of that transition is what is under question.” 
Energy stocks have jumped this year as oil prices bounced back from Covid-19 lockdowns and investors rotated into cyclical sectors. The energy group, which includes oil majors like Exxon Mobil and refiners like Phillips 66, has advanced 30%, beating out more expensive sectors in the benchmark, such as technology. 
It remains to be seen if this year’s strength is a blip in the long-term decline, or the start of a sustained rebound. M
Unlike most other sectors, energy stocks remain well below pre-pandemic levels after years of poor returns and souring sentiment over their contribution to global warming.
But the list of problems for oil and gas companies has not dimmed the allure of their stocks for some. 
Last week, RBC’s Lori Calvasina recommended investors maintain a higher exposure to energy and financials. 
Bank of America’s Savita Subramanian’s named energy as a top pick with the potential for higher earnings and depressed valuations. 

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